---















CONSOLIDATED FINANCIAL STATEMENTS

For the years endedDecember
31, 2016 and 2015

---

INDEPENDENT AUDITORS REPORT

To the Shareholders of Timmins Gold Corp.

We have audited the accompanying consolidated financial
statements of Timmins Gold Corp., which comprise the consolidated statements of
financial position as at December 31, 2016 and December 31, 2015, and the
consolidated statements of earnings (loss) and comprehensive income (loss),
consolidated statements of changes in equity and consolidated statements of cash
flows for the years then ended, and a summary of significant accounting policies
and other explanatory information.

Management's Responsibility for the Consolidated Financial
Statements

Management is responsible for the preparation and fair
presentation of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or
error.

Auditor's Responsibility

Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We conducted our audits
in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor's judgment, including
the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in
order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the
consolidated financial statements.

We believe that the audit evidence we have obtained in our
audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of Timmins Gold Corp.
as at December 31, 2016 and December 31, 2015, and its financial performance and
its cash flows for the years then ended in accordance with International
Financial Reporting Standards as issued by the International Accounting
Standards Board.

/s/ Deloitte LLP

Chartered Professional Accountants

March 8, 2017 Vancouver, Canada

---

|TIMMINS GOLD CORP.                                                                       
|-----------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND
      COMPREHENSIVE INCOME (LOSS)         
|For the years ended December 31, 2016 and 2015                                           
|(In thousands of
      United States dollars, except share numbers and per share amounts)

|                                                                                    |  | Note   |   | 2016        |   |   | 2015        |  
|----------------------------------------------------------------------------------- |  | ------ | - | ----------- | - | - | ----------- | -
|                                                                                    |  |        |   |             |   |   |             |  
|                                                                                    |  |        |   |             |   |   |             |  
|Metal revenues                                                                      |  | 25     | $ | 123,873     |   | $ | 109,192     |  
|                                                                                    |  |        |   |             |   |   |             |  
|Cost of sales (including depreciation and depletion)                                |  | 8a)    |   | 89,016      |   |   | 112,084     |  
|                                                                                    |  |        |   |             |   |   |             |  
|Earnings (loss) from mine operations                                                |  |        |   | 34,857      |   |   | (2,892      | )
|                                                                                    |  |        |   |             |   |   |             |  
|Corporate and administrative expenses                                               |  | 8b)    |   | 7,607       |   |   | 10,519      |  
|Loss on sale of asset                                                               |  | 5      |   | 856         |   |   | -           |  
|Impairment reversal of mineral properties
      and other assets                    |  | 7a)    |   | (23,699     | ) |   | -           |  
|Impairment of
      mineral properties, exploration and evaluation and other assets |  | 5, 7b) |   | 12,737      |   |   | 228,367     |  
|                                                                                    |  |        |   |             |   |   |             |  
|Earnings (loss) from operations                                                     |  |        |   | 37,356      |   |   | (241,778    | )
|                                                                                    |  |        |   |             |   |   |             |  
|Other income (expense), net                                                         |  |        |   | 159         |   |   | 679         |  
|Finance expense                                                                     |  | 8c)    |   | (2,957      | ) |   | (599        | )
|Gain on derivative contracts                                                        |  | 21b)   |   | 2,003       |   |   | -           |  
|Loss on debenture renegotiation                                                     |  |        |   | -           |   |   | (98         | )
|Foreign exchange
      (loss) gain                                                  |  |        |   | (591        | ) |   | 1,227       |  
|                                                                                    |  |        |   |             |   |   |             |  
|Earnings (loss)
      before income taxes                                           |  |        |   | 35,970      |   |   | (240,569    | )
|                                                                                    |  |        |   |             |   |   |             |  
|Income taxes                                                                        |  |        |   |             |   |   |             |  
|Current tax expense                                                                 |  | 18     |   | 3,362       |   |   | 432         |  
|Deferred tax
      expense (recovery)                                               |  | 18     |   | 870         |   |   | (50,690     | )
|                                                                                    |  |        |   | 4,232       |   |   | (50,258     | )
|                                                                                    |  |        |   |             |   |   |             |  
|Earnings (loss) and comprehensive income (loss) for the
      year                  |  |        | $ | 31,738      |   | $ | (190,311    | )
|                                                                                    |  |        |   |             |   |   |             |  
|Weighted average shares outstanding:                                                |  |        |   |             |   |   |             |  
|Basic                                                                               |  | 19     |   | 320,989,300 |   |   | 248,620,420 |  
|Diluted                                                                             |  | 19     |   | 324,193,553 |   |   | 248,620,420 |  
|                                                                                    |  |        |   |             |   |   |             |  
|Earnings (loss) per share:                                                          |  |        |   |             |   |   |             |  
|Basic                                                                               |  | 19     | $ | 0.10        |   | $ | (0.77       | )
|Diluted                                                                             |  | 19     | $ | 0.10        |   | $ | (0.77       | )

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                            
|----------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS         
|For the years ended December 31, 2016 and 2015
|(In thousands of
      United States dollars) 

|                                                                                              |  | Note       |   | 2016    |   |   | 2015     |  
|--------------------------------------------------------------------------------------------- |  | ---------- | - | ------- | - | - | -------- | -
|                                                                                              |  |            |   |         |   |   |          |  
|OPERATING ACTIVITIES                                                                          |  |            |   |         |   |   |          |  
|Earnings (loss) before income taxes                                                           |  |            | $ | 35,970  |   | $ | (240,569 | )
|Items not affecting cash:                                                                     |  |            |   |         |   |   |          |  
|Loss on sale of asset                                                                         |  | 5          |   | 856     |   |   | -        |  
|Impairment of
      mineral properties, exploration and evaluation and other asset            |  | 5, 7b)     |   | 12,737  |   |   | 228,367  |  
|Impairment reversal of mineral
      properties and other assets                              |  | 7a)        |   | (23,699 | ) |   | -        |  
|Depletion and
      depreciation                                                              |  | 8a)        |   | 14,299  |   |   | 16,542   |  
|Finance expense                                                                               |  | 8c)        |   | 2,957   |   |   | 599      |  
|Share-based payments                                                                          |  | 8b)        |   | 837     |   |   | 1,573    |  
|Gain on derivative contracts                                                                  |  | 21b)       |   | (1,875  | ) |   | -        |  
|Other provision
      revaluation                                                             |  |            |   | 95      |   |   | -        |  
|Loss on debenture renegotiation                                                               |  |            |   | -       |   |   | 98       |  
|Unrealized foreign exchange loss
      (gain)                                                 |  |            |   | 706     |   |   | (1,499   | )
|                                                                                              |  |            |   | 42,883  |   |   | 5,111    |  
|Changes in non-cash working capital
      items:                                              |  |            |   |         |   |   |          |  
|Trade and other receivables                                                                   |  |            |   | 2,803   |   |   | 6,746    |  
|Inventories                                                                                   |  |            |   | (1,255  | ) |   | 420      |  
|Advances and prepaid expenses                                                                 |  |            |   | (700    | ) |   | 93       |  
|Trade payables and accrued liabilities                                                        |  |            |   | (9,649  | ) |   | 920      |  
|Cash
      provided by operating activities                                                   |  |            |   | 34,082  |   |   | 13,290   |  
|                                                                                              |  |            |   |         |   |   |          |  
|INVESTING ACTIVITIES                                                                          |  |            |   |         |   |   |          |  
|Expenditures on mineral properties, plant
      and equipment, exploration and evaluation     |  | 11         |   | (18,979 | ) |   | (31,989  | )
|Caballo Blanco Property sale proceeds, net of
      transaction costs                         |  | 5          |   | 9,153   |   |   | -        |  
|Acquisition of Newstrike, net of cash
      acquired                                          |  | 6          |   | -       |   |   | 258      |  
|Newstrike
      transaction costs                                                             |  | 6          |   | (2,552  | ) |   | -        |  
|Cash used in investing activities                                                             |  |            |   | (12,378 | ) |   | (31,731  | )
|                                                                                              |  |            |   |         |   |   |          |  
|FINANCING ACTIVITIES                                                                          |  |            |   |         |   |   |          |  
|Interest paid                                                                                 |  | 8c)        |   | (597    | ) |   | (1,044   | )
|Loan facility extension fees                                                                  |  | 14         |   | (602    | ) |   | -        |  
|Proceeds from equity financing, net of transaction
      costs                                |  | 16a), 17a) |   | 13,803  |   |   | 4,616    |  
|Repayment of principal on loan
      facility                                                 |  | 14         |   | (10,223 | ) |   | -        |  
|Repayment of
      debenture                                                                  |  | 15         |   | (1,540  | ) |   | -        |  
|Cash provided by financing activities                                                         |  |            |   | 841     |   |   | 3,572    |  
|                                                                                              |  |            |   |         |   |   |          |  
|Effects of exchange rate changes on
      the balance of cash held in foreign currencies      |  |            |   | (167    | ) |   | (584     | )
|                                                                                              |  |            |   |         |   |   |          |  
|Increase (decrease) in cash and cash
      equivalents                                        |  |            |   | 22,378  |   |   | (15,453  | )
|Cash and cash
      equivalents, including restricted cash (note 11), beginning of
      year |  |            |   | 11,499  |   |   | 26,952   |  
|Cash and cash equivalents including restricted cash
      (note 11), end of year              |  |            | $ | 33,877  |   | $ | 11,499   |  
|                                                                                              |  |            |   |         |   |   |          |  
|Supplemental disclosure with respect to
      cash flows(note 20)                             |  |            |   |         |   |   |          |  

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                           
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|(In thousands of
      United States dollars)

|                                               |  |      |   | December 31, |   |   | December
      31, |  
|---------------------------------------------- |  | ---- | - | ------------ | - | - | ------------------ | -
|                                               |  | Note |   | 2016         |   |   | 2015               |  
|                                               |  |      |   |              |   |   |                    |  
|ASSETS                                         |  |      |   |              |   |   |                    |  
|Current                                        |  |      |   |              |   |   |                    |  
|Cash and cash
      equivalents                |  | 20   | $ | 33,877       |   | $ | 9,183              |  
|Restricted cash                                |  | 11   |   | -            |   |   | 2,316              |  
|Trade and other
      receivables              |  | 9    |   | 8,899        |   |   | 10,876             |  
|Inventories                                    |  | 10   |   | 10,335       |   |   | 8,904              |  
|Advances and
      prepaid expenses            |  |      |   | 1,556        |   |   | 856                |  
|Derivative asset                               |  | 21b) |   | 1,875        |   |   | -                  |  
|Total current assets                           |  |      |   | 56,542       |   |   | 32,135             |  
|                                               |  |      |   |              |   |   |                    |  
|Mineral properties, plant and
      equipment, |  |      |   |              |   |   |                    |  
|exploration and evaluation                     |  | 11   |   | 114,301      |   |   | 120,702            |  
|Total assets                                   |  |      | $ | 170,843      |   | $ | 152,837            |  
|                                               |  |      |   |              |   |   |                    |  
|LIABILITIES                                    |  |      |   |              |   |   |                    |  
|Current                                        |  |      |   |              |   |   |                    |  
|Trade payables
      and accrued liabilities   |  | 12   | $ | 17,187       |   | $ | 32,451             |  
|Current portion of equipment
      financing   |  | 11   |   | 378          |   |   | 851                |  
|Loan facility                                  |  | 14   |   | -            |   |   | 10,019             |  
|Debenture                                      |  | 15   |   | -            |   |   | 1,480              |  
|Other provisions                               |  |      |   | 1,219        |   |   | 1,113              |  
|Total
      current liabilities                |  |      |   | 18,784       |   |   | 45,914             |  
|                                               |  |      |   |              |   |   |                    |  
|Warrant liability                              |  | 16   |   | 2,471        |   |   | 282                |  
|Deferred tax liabilities                       |  | 18b) |   | 3,354        |   |   | 1,305              |  
|Provision for site reclamation and closure     |  | 13   |   | 3,148        |   |   | 3,981              |  
|Provision for contingent payment               |  | 5    |   | -            |   |   | 4,515              |  
|Long-term
      equipment financing            |  | 11   |   | -            |   |   | 378                |  
|Total liabilities                              |  |      |   | 27,757       |   |   | 56,375             |  
|                                               |  |      |   |              |   |   |                    |  
|EQUITY                                         |  |      |   |              |   |   |                    |  
|Issued capital                                 |  | 17a) |   | 212,698      |   |   | 198,649            |  
|Share-based payment reserve                    |  |      |   | 18,317       |   |   | 17,480             |  
|Deficit                                        |  |      |   | (87,929      | ) |   | (119,667           | )
|Total equity                                   |  |      |   | 143,086      |   |   | 96,462             |  
|Total
      liabilities and equity             |  |      | $ | 170,843      |   | $ | 152,837            |  
|                                               |  |      |   |              |   |   |                    |  
|Commitments and contingencies(note 24)         |  |      |   |              |   |   |                    |  
|Events after the reporting period(note 9, 21)  |  |      |   |              |   |   |                    |  

Approved by the Directors

|Greg
      McCunn | Director | Paula Rogers | Director
|------------------- | -------- | -------------- | --------

The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                                                 
|-------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                       
|(In thousands of
      United States dollars, except share numbers)

Share-Number of
    
    
    
    
    
    
    based
    
    
    (Deficit)common
    
    
    
    Issued
    
    
    payment
    
    
    Retained
    
    
    Totalshares
    
    
    
    capital
    
    
    reserve
    
    
    earnings
    
    
    equityBalance at January 1, 2016
    Note
    
    315,332,190
    
    
    $
    198,649
    
    $
    17,480
    
    $
    (119,667
    )
    $
    96,462Earnings and comprehensive income for the year
    
    
    -
    
    
    
    -
    
    
    -
    
    
    31,738
    
    
    31,738Share-based payments
    17
    
    -
    
    
    
    -
    
    
    837
    
    
    -
    
    
    837Shares issued for debenture interest
    17
    
    301,936
    
    
    
    80
    
    
    -
    
    
    -
    
    
    80Shares issued in lieu of bonus payment
      on long-term debt extinguishment
    17
    
    550,000
    
    
    
    134
    
    
    -
    
    
    -
    
    
    134Shares issued in lieu of termination benefits
    17
    
    3,044,476
    
    
    
    848
    
    
    -
    
    
    -
    
    
    848Shares issued for cash equity financing
    17
    
    36,400,000
    
    
    
    12,987
    
    
    -
    
    
    -
    
    
    12,987Balance at
      December 31, 2016
    
    
    355,628,602
    
    
    $
    212,698
    
    $
    18,317
    
    $
    (87,929
    )
    $
    143,086Balance at January
      1, 2015
    
    
    179,877,379
    
    
    $
    128,735
    
    $
    14,398
    
    $
    70,644
    
    $
    213,777Loss and comprehensive loss for the year
    
    
    -
    
    
    
    -
    
    
    -
    
    
    (190,311
    )
    
    (190,311
    )Share-based payments
    
    
    -
    
    
    
    -
    
    
    1,573
    
    
    -
    
    
    1,573Issued to acquire Newstrike Capital Inc.Shares, net of share issuance
      costs
    17
    
    105,108,103
    
    
    
    63,820
    
    
    -
    
    
    -
    
    
    63,820Share options
    
    
    -
    
    
    
    -
    
    
    1,509
    
    
    -
    
    
    1,509Shares issued for private placement
    17
    
    20,000,000
    
    
    
    3,729
    
    
    -
    
    
    -
    
    
    3,729Shares issued for plant acquisition
    17
    
    10,000,000
    
    
    
    2,291
    
    
    -
    
    
    -
    
    
    2,291Shares issued for
      debenture interest
    17
    
    346,708
    
    
    
    74
    
    
    -
    
    
    -
    
    
    74Balance at December 31, 2015
    
    
    315,332,190
    
    
    $
    198,649
    
    $
    17,480
    
    $
    (119,667
    )
    $
    96,462


The accompanying notes are an integral part of these
consolidated financial statements.

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|1. | NATURE OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Timmins Gold Corp. (the Company) was incorporated on
      March 17, 2005 under the laws of the Province of British Columbia, Canada.
      The Company is in the business of acquiring, exploring, developing and
      operating mineral resource properties in Mexico, through its wholly-owned
      subsidiaries, Timmins Goldcorp Mexico, S.A. de C.V. and Molimentales del
      Noroeste, S.A. de C.V. (MdN) (collectively the subsidiaries). MdN owns
      the San Francisco Mine in Sonora, Mexico. On May 26, 2015, Timmins
      acquired all the outstanding common shares of Newstrike Capital Inc.
      (Newstrike) (note 6). Through this acquisition, Timmins acquired
      Newstrikes wholly owned subsidiary Minera Aurea, S.A de C.V. which holds
      a 100% interest in the Ana Paula Property, an exploration and evaluation
      asset in Guerrero, Mexico.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | MdN also owned the Caballo Blanco Property, an
      exploration and evaluation asset in Veracruz, Mexico, acquired on December
      23, 2014. The Caballo Blanco Property was sold on July 20, 2016 to
      Candelaria Mining Corp. (Candelaria) (note 5).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company is listed for trading on the Toronto Stock
      Exchange under the symbol TMM and the New York Stock Exchange MKT under
      the symbol TGD. The registered office of the Company is located at Suite
      615 - 700 West Pender Street, Vancouver, British Columbia, Canada, V6C
      1G8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | BASIS OF PREPARATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|a) | Statement of compliance                                                                                                                                                                                                                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements have been
      prepared in accordance with International Financial Reporting Standards as
      issued by the International Accounting Standards Board (IFRS).                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                            
|   | These consolidated financial statements were approved by
      the Board of Directors and authorized for issue on March 8,
2017.                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                            
|b) | Basis of measurement                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                            
|   | The consolidated financial statements have been prepared
      using the historical cost basis specified by IFRS for each type of asset,
      liability, income and expense as set out in the accounting policies below,
      except for certain financial assets and liabilities which are measured at
      fair value.
|   |                                                                                                                                                                                                                                                                                                                            
|c) | Functional currency and presentation
    currency                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                            
|   | The consolidated financial statements are presented in
      thousands of United States (US) dollars, except as otherwise noted,
      which is the functional currency of the Company and each of the Companys
      subsidiaries. References to C$ are to Canadian dollars, which are also
      stated in thousands. 
|   |                                                                                                                                                                                                                                                                                                                            
|d) | Judgements                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                            
|   | The critical judgements that the Companys management has
      made in the application of the accounting policies presented in note 3
      that have the most significant effect on the amounts recognized in these
      consolidated financial statements are as
follows:                                              

| | i. | Functional currency                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | The functional currency for each of the Companys
      subsidiaries is the currency of the primary economic environment in which
      the respective entity operates; the Company has determined the functional
      currency of each entity to be the US dollar. Such determination involves
      certain judgements to identify the primary economic environment. The
      Company reconsiders the functional currency of its subsidiaries if there
      is a change in events and/or conditions which determine the primary
      economic environment.

6

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
|   |                                 
|   | ii.                             
|   |                                 
|   |                                 
|   |                                 
|   | iii.                            
|   |                                 
|   |                                 

|e) | Significant estimates and assumptions                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The preparation of the Companys consolidated financial
      statements in conformity with IFRS requires management to make estimates
      based on assumptions about future events that affect the reported amounts
      of assets and liabilities and disclosures of contingent assets and
      liabilities at the date of the financial statements and the reported
      amounts of revenues and expenses during the reporting period.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The estimates and associated assumptions are based on
      historical experience and various other factors that are believed to be
      reasonable under the circumstances, the results of which form the basis of
      making the judgements about carrying values of assets and liabilities that
      are not readily apparent from other sources. Actual results could differ
      from those estimates.                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The estimates and underlying assumptions are reviewed on
      an ongoing basis. Revisions to accounting estimates are recognized
      prospectively in the period in which the estimate is revised.                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Areas that require significant estimates and assumptions
      as the basis for determining the stated amounts include, but are not
      limited to, the following:                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | i.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                               

7

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
|   |                                 
|   | ii.                             
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   | iii.                            
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   | iv.                             
|   |                                 
|   |                                 

8

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
|   |                                 
|   | v.                              
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   | vi.                             
|   |                                 
|   |                                 
|   |                                 
|   |                                 

9

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|2. | BASIS OF PREPARATION (Continued)
|-- | --------------------------------
|   |                                 
|   | vii.                            
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   |                                 
|   | viii.                           
|   |                                 
|   |                                 
|   |                                 
|   | ix.                             
|   |                                 
|   |                                 

|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                       
|   | The significant accounting policies used in the preparation of these consolidated financial statements are as follows:

|a) | Basis of consolidation                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                
|   | These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries disclosed in note 1. All inter-company balances, transactions, revenues and expenses have been eliminated on
consolidation.                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                
|   | Control exists where the parent entity is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are
included in the consolidated financial statements from the date control commences until the date control ceases.

10

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

|b) | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | In preparing the financial statements of each individual
      group entity, transactions in currencies other than the entity's
      functional currency (foreign currencies) are translated at the rates of
      exchange prevailing at the dates of the transactions. At the end of each
      reporting period, monetary assets and liabilities denominated in foreign
      currencies are translated at the exchange rates prevailing at that date.
      Exchange gains and losses are recognized on a net basis in earnings or
      loss from operations for the period.                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|c) | Cash and cash equivalents and restricted
    cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Cash and cash equivalents and restricted cash in the
      statements of financial position are comprised of cash and highly liquid
      investments having maturity dates of three months or less from the date of
      purchase, which are readily convertible into known amounts of
  cash.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|d) | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Metal revenues are earned from the sale of refined metal
      (primarily gold and silver by-product) and are recognized when significant
      risks and rewards of ownership have passed to the buyer, it is probable
      that economic benefits associated with the transaction will flow to the
      Company, the sale price can be measured reliably, the Company has no
      significant continuing involvement, and the costs incurred or to be
      incurred in respect of the transaction can be measured reliably. Metal
      revenues are subject to adjustment upon final settlement based upon metal
      prices, weights and assays. These adjustments are recorded within metal
      revenues.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|e) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company predominantly produces gold and silver
      by-product. Inventories consist of unprocessed ore stockpile, ore in
      process, finished metal inventory (doré), and operational supplies. Doré
      represents a bar containing predominantly gold by value which must be
      refined into its saleable metals.                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | These inventories are valued at the lower of cost and NRV
      after consideration of additional processing, refining and transportation
      costs. NRV represents the estimated future sales price of the product
      based on prevailing and long-term metals prices, less the estimated costs
      to complete production and bring the product to saleable form.                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Write-downs of inventory are recognized in earnings or
      loss from operations as incurred. The Company reverses write- downs in the
      event that there is a subsequent increase in
NRV.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i.  | Ore in process                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | The recovery of gold and silver from the ore is achieved through heap leaching processes. Costs are added to ore on leach pads based on current mining and processing costs, including applicable overhead, depletion and depreciation
relating to mining operations. Costs are removed from ore on leach pads as ounces are recovered, based on the average cost per ounce of recoverable gold in ore in process inventory.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ii. | Finished metal inventory                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     | Finished metal inventory consists of doré bars containing gold and silver.                                                                                                                                                                                                                                                                                                                                                  

11

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | -------------------------------------------
|   |                                            
|   | iii.                                       
|   |                                            
|   |                                            
|   |                                            
|   |                                            

|f) | Mineral properties, plant and equipment, exploration and evaluation
|-- | -------------------------------------------------------------------
|   |                                                                    
|   | i.                                                                 
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    
|   |                                                                    

12

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| |      | The Company previously included stripping costs in its
      production costs using a strip ratio based on tonnes of material removed
      compared to the estimated strip ratio per each separately identifiable
      component. Periods where the actual strip ratio for the identifiable
      component exceeded the average life of mine strip ratio for that component
      resulted in deferral of the excess stripping costs as an asset recorded
      within mineral properties (note 11). Commencing on October 1, 2015, as a
      result of the impairment (note 7(b)), all stripping costs were included in
      production costs. On October 1, 2016, as a result of the impairment
      reversal (note 7(a)) and extended mine life, the Company resumed
      capitalizing stripping costs.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ii.  | Plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Plant and equipment is measured at cost less accumulated
      depreciation and impairment losses. Cost includes the purchase price, any
      costs directly attributable to bringing plant and equipment to the
      location and condition necessary for it to be capable of operating in the
      manner intended by management and the estimated site reclamation and
      closure costs associated with removing the asset, and, where applicable,
      borrowing costs.                                                                                                                                                                                                                                                                                                                               
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Upon sale or abandonment of any plant and equipment, the
      cost and related accumulated depreciation and impairment losses are
      written off and any gains or losses thereon are recognized in earnings or
      loss for the period. When the parts of an item of plant and equipment have
      different useful lives, they are accounted for as separate items (major
      components) of plant and equipment.                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | The cost of replacing or overhauling a component of an
      item of plant and equipment is recognized in the carrying amount of the
      item if it is probable that the future economic benefits embodied within
      the component will flow to the Company and its cost can be measured
      reliably. The carrying amount of the replaced component is derecognized.
      Maintenance and repairs of a routine nature are charged to earnings or
      loss as incurred.                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | iii. | Exploration and evaluation costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Acquisition costs for exploration and evaluation stage
      properties are capitalized. Exploration and evaluation expenditures
      incurred on a mineral property are capitalized where management determines
      there is sufficient evidence that the expenditure will result in a future
      economic benefit to the Company. All other exploration and evaluation
      expenditures are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |      | Exploration and evaluation expenditures comprise costs
      that are directly attributable to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |  | researching and analyzing
      existing exploration data;                                                                           
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | conducting geological studies,
      exploratory drilling and sampling;                                                              
| |  | examining and testing extraction
      and treatment methods; and                                                                    
| |  | activities in relation to
      evaluating the technical feasibility and commercial viability of
      extracting a mineral resource.

Subsequent to completion of a positive
economic analysis on a mineral property, capitalized acquisition costs and
exploration and evaluation expenditures are reclassified to mineral properties.
The Company is in the process of exploring and developing many of its
exploration and evaluation properties and has not yet determined the amount of
reserves available.

13

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| |     | Management reviews the carrying value of mineral
      properties at each reporting date and will recognize impairment in value
      based upon current exploration results, the prospect of further work being
      carried out by the Company, the assessment of future probability of
      profitable revenues from the property, or from the sale of the property.
      Amounts shown for properties represent costs incurred net of impairments
      and recoveries.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | iv. | Depletion and depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Mineral property costs, including deferred stripping
      costs, are depreciated when commercial production begins using the UOP
      method based on estimated proven and probable reserves.                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |     | Plant and equipment, including major components, are
      depreciated using the following depreciation methods and rates for the
      nine months ended September 30, 2015:                                                                                                                                                                                                                                                                                                 

| | Computer equipment             | 30% straight line
      method
| | ------------------------------ | ------------------------------
| | Leasehold improvements         | 20% straight line method      
| | Office furniture and equipment | 10% straight line
      method
| | Vehicles                       | 25% straight line method      
| | Mine equipment and buildings   | UOP method                    
| | Plant and equipment            | UOP method                    

Effective October 1, 2015, as a result
of the impairment (note 7(b)), the expected life of plant and equipment at the
San Francisco Mine was revised to align to the updated mine plan. The associated
depreciation rates were updated as follows, with no changes in the depreciation
method:

| | Computer equipment             | 33% straight line
      method
| | ------------------------------ | ------------------------------
| | Leasehold improvements         | 33% straight line method      
| | Office furniture and equipment | 33% straight line
      method
| | Vehicles                       | 33% straight line method      
| | Mine equipment and buildings   | UOP method                    
| | Plant and equipment            | UOP method                    

Effective October 1, 2016, as a result
of the impairment reversal (note 7(a)), the expected life of plant and equipment
at the San Francisco Mine was revised to align with depreciation rates prior to
October 1, 2015.

Depreciation commences on the date the
asset is available for use.

|g) | Provisions                                                                                                                                                                                                                                                               
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                          
|   | A provision is recognized if, as a result of a past
      event, the Company has a present legal or constructive obligation that can
      be estimated reliably and it is probable that an outflow of economic
      benefits will be required to settle the obligation.
|   |                                                                                                                                                                                                                                                                          
|   | Constructive obligations are obligations that derive from
      the Companys actions where:                                                                                                                                                                             

| |  | by an established pattern of past practice, published
      policies or a sufficiently specific current statement, the Company has
      indicated to other parties that it will accept certain responsibilities;
      and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | as a result, the Company has created a valid expectation
      on the part of those other parties that it will discharge those
      responsibilities.                                                                     

14

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)                                                                                                                                                                                                                                                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Provisions are reviewed at the end of each reporting
      period and adjusted to reflect managements current best estimate of the
      expenditure required to settle the present obligation at the end of the
      reporting period. If it is no longer probable that an outflow of resources
      embodying economic benefits will be required to settle the obligation, the
      provision is reversed.      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Provisions are reduced by actual expenditures for which
      the provision was originally recognized. Provisions are determined by
      discounting the expected future cash flows at a pre-tax rate that reflects
      the current market assessments of the time value of money and the risks
      specific to the liability. The accretion of the discount is charged to
      earnings or loss for the period.

| | i.  | Provision for site reclamation and
  closure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Companys mining and exploration activities are
      subject to various laws and regulations governing the protection of the
      environment. The Company records the fair value of a provision for site
      reclamation and closure as a liability in the period in which it incurred
      a legal or constructive obligation associated with the reclamation of the
      mine site and the retirement of tangible long-lived assets that result
      from the acquisition, construction, development, and/or normal use of the
      assets.                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The obligation is measured initially at present value
      based on estimated future cash flows derived using internal information
      and third party reports. The estimated cost is capitalized and included in
      the carrying value of the related mineral properties and is depreciated
      using either the straight-line method or UOP method, as
  appropriate.                                                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The provision is initially discounted using a current
      market-based pre-tax discount rate and subsequently increased for the
      unwinding of the discount. The unwinding of the discount is charged to
      earnings or loss for the period.                                                                                                                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | At each reporting date, the Company reviews its provision
      for site reclamation and closure to reflect the current best estimate. The
      provision for site reclamation and closure is adjusted for changes in
      factors such as the amount or timing of the expected underlying cash
      flows, or the market-based pre-tax discount rate, with the offsetting
      amount recorded to the site reclamation and closure asset included in
      mineral properties which arises at the time of establishing the provision.
      The site reclamation and closure asset is depreciated on the same basis as
      the related asset.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ii. | Provision for contingent payment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Companys acquisition of Caballo Blanco included a
      contingent payment of $5,000, if in the five years from the acquisition
      date of December 23, 2014, Caballo Blanco received approval for its
      environmental permit or the Company underwent a change of control. The
      Company estimated that the permitting requirements will be met during the
      year ended December 31, 2017.                                                                                                                                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The obligation was measured initially at present value
      based on estimated future cash flows discounted at a market based pre-tax
      discount rate. The estimated cost was capitalized and included in the
      carrying value of the related exploration and evaluation mineral
      properties.                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The provision was initially and subsequently increased
      for the unwinding of the discount over managements estimated period of
      two years. The unwinding of the discount was charged to earnings or loss
      for the period.                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Caballo Blanco Property was sold on July 20, 2016, to
      Candelaria (note 5). The contingent payment was assumed by Candelaria as
      part of the consideration.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

15

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | -------------------------------------------

|h) | Share-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Certain employees and directors of the Company receive a portion of their remuneration in the form of share options. The fair value of the share options, determined at the date of the grant, is charged to earnings or loss, with an
offsetting credit to share-based payment reserve, over the vesting period. If and when the share options are exercised, the applicable original amounts of share-based payment reserve are transferred to issued capital.                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The fair value of a share-based payment is determined at the date of the grant. The estimated fair value of share options is measured using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires
the input of subjective assumptions, including the expected term of the option and share price volatility. The expected term of options granted is determined based on historical data on the average hold period before exercise, expiry or
cancellation. Expected volatility is estimated with reference to the historical volatility of the share price of the Company.                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | These estimates involve inherent uncertainties and the application of management’s judgement. The costs of share-based payments are recognized over the vesting period of the option. The total amount recognized as an expense
is adjusted to reflect the number of options expected to vest at each reporting date. At each reporting date prior to vesting, the cumulative compensation expense representing the extent to which the vesting period has passed and management’s
best estimate of the share options that are ultimately expected to vest is computed. The movement in cumulative expense is recognized in earnings or loss with a corresponding entry to share-based payment reserve.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued if it is determined that the fair value of the goods or services cannot be
reliably measured, and are recorded at the date the goods or services are received.                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | No expense is recognized for share options that do not ultimately vest. Charges for share options that are forfeited before vesting are reversed from share-based payment reserve and credited to earnings or loss. For those share
options that expire unexercised after vesting, the recorded value remains in share-based payment reserve.                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|i) | Warrant liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Share purchase warrants are classified as a warrant liability under the principles of IAS 39 - Financial Instruments: Recognition and Measurement. As the exercise price of the share purchase warrant is fixed in Canadian
dollars (C$) and the functional currency of the Company is the US dollar, the share purchase warrants are considered a derivative liability in accordance with IAS 32 - Financial Instruments: Presentationas a variable amount of cash in
the Company’s functional currency will be received upon exercise.                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | These types of share purchase warrants are recognized at fair value using the Black-Scholes option pricing model or the listed trading price at the date of issue. Share purchase warrants are initially recorded as a liability at
fair value with any subsequent changes in fair value recognized in earnings or loss as finance expense.                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Upon exercise of the share purchase warrants with exercise prices in a currency other than the Company’s functional currency, the share purchase warrants are revalued at the date of exercise and the total fair value of the
exercised share purchase warrants is reallocated to equity. The proceeds generated from the payment of the exercise price are also allocated to equity.                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|j) | Issued capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Common shares are classified as issued capital. Costs directly attributable to the issue of common shares are recognized as a deduction from issued capital, net of any tax effects.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

16

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

|k) | Financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Financial assets, other than derivatives which are part
      of effective hedging arrangements, are classified as held to maturity,
      available-for-sale, loans and receivables or fair value through earnings
      or loss (FVTPL).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Financial assets classified as available-for-sale are
      measured initially at fair value plus transaction costs and subsequently
      at fair value with unrealized gains and losses recognized in other
      comprehensive income except for financial assets that are considered to be
      impaired, in which case the impairment loss is charged to earnings or
      loss. The Company has not classified any assets as available-for-sale for
      any period presented.                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Financial assets classified as loans and receivables are
      measured initially at fair value plus transaction costs and subsequently
      at amortized cost using the effective interest method. The effective
      interest method is a method of calculating the amortized cost of a
      financial asset and allocating the interest expense over the relevant
      period. The effective interest rate is the rate that exactly discounts
      estimated future cash payments through the expected life of the financial
      asset, or, where appropriate, a shorter period. The Companys cash and
      cash equivalents, restricted cash, and trade and other receivables are
      classified as loans and receivables.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Financial assets classified as FVTPL are measured on
      initial recognition and subsequently at fair value with unrealized gains
      and losses recognized in earnings or loss. Transaction costs are expensed
      for assets classified as FVTPL. The Company has not classified any assets
      as FVTPL for any period presented.                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|l) | Financial liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Financial liabilities, which are trade payables and
      accrued liabilities, vendor loan, equipment financing, and loan facility
      are initially recognized at fair value less directly attributable
      transaction costs. Subsequently, financial liabilities are measured at
      amortized cost using the effective interest method.                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Financial liabilities classified as FVTPL include
      financial liabilities held for trading and financial liabilities
      designated upon recognition as FVTPL. Fair value changes on these
      liabilities are recognized in earnings or loss.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|m) | Impairment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | i. | Impairment of financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | At each reporting date, the Company assesses whether
      there is any objective evidence that a financial asset or a group of
      financial assets, other than financial assets classified as FVTPL, is
      impaired. A financial asset or a group of financial assets is impaired if
      there is objective evidence that the estimated future cash flows of the
      financial asset or the group of financial assets have been negatively
      impacted, and the impact can be reliably measured.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Objective evidence of impairment could include the
      following:                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |  | significant financial difficulty
      of the issuer or counterparty;                            
| | - | -------------------------------------------------------------------------------------------------
| |  | default or delinquency in
      interest or principal payments; or                               
| |  | it has become probable that the
      borrower will enter bankruptcy or financial reorganization.

17

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

| |     | An impairment loss in respect of a financial asset
      measured at amortized cost is calculated as the difference between its
      carrying amount and the present value of the estimated future cash flows
      discounted at the assets original effective interest rate. Losses are
      recognized in earnings or loss and reflected in an allowance account
      against trade and other receivables. Interest on the impaired asset
      continues to be recognized through the unwinding of the
discount.                                                                                                                                                                                                                                       
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | With the exception of available-for-sale equity
      instruments, if, in a subsequent period, the amount of the impairment loss
      decreases, the previously recognized impairment loss is reversed through
      earnings or loss to the extent that the carrying amount of the impaired
      financial asset at the date the impairment is reversed does not exceed
      what the amortized cost would have been had the impairment not been
      recognized. In respect to available-for-sale equity instruments,
      impairment losses previously recognized in earnings or loss are not
      reversed through earnings or loss. Any increase in fair value subsequent
      to an impairment loss is recognized in other comprehensive
  income.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ii. | Impairment of non-financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | At each reporting date, the Company reviews the carrying
      amounts of its non-financial assets to determine whether there are any
      indications of impairment. If any such indication exists such as decreases
      in metal prices, an increase in operating costs, a decrease in mineable
      reserves or a change in foreign exchange rate, the recoverable amount of
      the asset is estimated in order to determine the extent of the impairment,
      if any. In determining the recoverable amount, the Company also considers
      the net carrying amount of the asset, the ongoing costs required to
      maintain and operate the asset, and the use, value and condition of the
      asset.                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Where the asset does not generate cash inflows that are
      independent with other assets, the Company estimates the recoverable
      amount of the cash-generating unit (CGU) to which the asset belongs. A
      CGU is the smallest identifiable group of assets that generates cash
      inflows that are largely independent of the cash inflows from other assets
      or group of assets. This generally results in the Company evaluating its
      non-financial assets on a property by property basis.                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The recoverable amount is determined as the higher of
      fair value less costs of disposal and the assets value in use. Fair value
      is determined with reference to discounted estimated future cash flow
      analysis or to recent transactions involving dispositions of similar
      properties. In assessing value in use, the estimated future cash flows are
      discounted to their present value.                                                                                                                                                                                                                                                                                                                                        
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | The pre-tax discount rate applied to the estimated future
      cash flows measured on a value in use basis reflects current market
      assessments of the time value of money and the risks specific to the asset
      for which the future cash flow estimates have not been adjusted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | If the carrying amount of an asset or CGU exceeds its
      recoverable amount, the carrying amount of the asset or CGU is reduced to
      its recoverable amount. An impairment loss is recognized as a charge to
      earnings or loss. Non-financial assets that have been impaired are tested
      for possible reversal of the impairment whenever events or changes in
      circumstance indicate that the impairment may have reversed.                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |     | Where an impairment subsequently reverses, the carrying
      amount of the asset or CGU is increased to the revised estimate of its
      recoverable amount, but only so that the increased carrying amount does
      not exceed the carrying amount that would have been determined (net of
      depletion and depreciation) had no impairment loss been recognized for the
      asset or CGU in prior periods. A reversal of impairment is recognized as a
      gain in earnings or loss.                                                                                                                                                                                                                                                              

18

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES (Continued)
|-- | -------------------------------------------

|n) | Taxes
|-- | -----
|   |      
|   | i.   
|   |      
|   |      
|   |      
|   |      
|   |      
|   | ii.  
|   |      
|   |      
|   |      
|   |      
|   |      
|   |      
|   |      
|   |      
|   |      
|   |      
|   |      
|   | iii. 
|   |      
|   |      

|o) | Earnings (loss) from mine operations                                                                                                                                                                                                                                                                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                            
|   | Earnings (loss) from mine operations is calculated by subtracting the cost of sales, which includes production costs and depletion and depreciation, from the Company’s metal revenues.                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                            
|p) | Earnings (loss) from operations                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                            
|   | Earnings (loss) from operations is calculated by subtracting other operational expenses from the Company’s earnings from mine operations. Other operational expenses are those that are not directly attributable to the
production of inventory and include corporate and administrative expenses and any impairment of assets incurred during the period.

19

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|3. | SIGNIFICANT ACCOUNTING POLICIES
  (Continued)
|-- | ---------------------------------------------

|q) | Earnings (loss) per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Basic earnings (loss) per share (EPS) is calculated by
      dividing the earnings and comprehensive income of the Company by the basic
      weighted average number of common shares outstanding during the period.
      For purposes of calculating diluted EPS, the proceeds from the potential
      exercise of dilutive share options and share purchase warrants with
      exercise prices that are below the average market price of the underlying
      shares are assumed to be used in purchasing the Companys common shares at
      their average market price for the period.                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Share options and share purchase warrants are included in
      the calculation of diluted EPS only to the extent that the market price of
      the common shares exceeds the exercise price of the share options or share
      purchase warrants except where such conversion would be
    anti-dilutive.                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|r) | Borrowing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Borrowing costs directly attributable to the acquisition,
      construction or production of qualifying assets, which are assets that
      necessarily take a substantial period of time to get ready for their
      intended use or sale, are added to the cost of those assets, until such
      time as the assets are substantially ready for their intended use or sale.
      Qualifying assets include the cost of developing mineral properties and
      constructing new facilities.                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | Borrowing costs are capitalized at the rate of interest
      applicable to the specific borrowings financing the assets under
      construction, or, where financed through general borrowings, at a
      capitalization rate representing the weighted average interest rate on
      such borrowings. Investment income earned on the temporary investment of
      specific borrowings pending their expenditure on qualifying assets is
      deducted from the borrowing costs eligible for capitalization.                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | All other borrowing costs are recognized in earnings or
      loss in the period in which they are incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|s) | Operating segments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company has determined that it operates through one
      reportable operating segment, being the acquisition, exploration, and
      development of mineral properties located in Mexico. Reporting is prepared
      on a geographic and consolidated basis as determined by the requirements
      of the Chief Executive Officer as the chief operating decision maker for
      the Company. The Company does not treat the production of gold and silver
      by-product as separate operating segments as they are the output of the
      same production process and only become separately identifiable as
      finished goods and are not reported separately from a management
      perspective.

|4. | RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                            
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                             
|   | Certain pronouncements were issued by the IASB or the
      IFRS Interpretations Committee (IFRIC) that are mandatory for accounting
      periods after December 31, 2016. Pronouncements that are not applicable to
      the Company have been excluded from this note.
|   |                                                                                                                                                                                                                                                                             
|   | The following pronouncements have been issued but are not
      yet effective:                                                                                                                                                                                              

| | a) | IFRS 9 - Financial Instruments- In July 2014, the
      IASB issued the final version of IFRS 9 - Financial
    Instruments("IFRS 9") to replace IAS 39 - Financial Instruments:
      Recognition and Measurement. IFRS 9 provides a revised model for
      recognition and measurement of financial instruments and a single,
      forward-looking expected loss impairment model. IFRS 9 also includes a
      substantially reformed approach to hedge accounting. The standard is
      effective for annual periods beginning on or after January 1, 2018, with
      early adoption permitted. The Company plans to adopt IFRS 9 at the date it
      becomes effective.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|4. | RECENT ACCOUNTING PRONOUNCEMENTS
  (Continued)
|-- | ----------------------------------------------

The following summarizes the expected
impact on IFRS 9 upon adoption:

| |  | The classification of financial assets and liabilities is
      expected to remain consistent. The Company does not and does not expect to
      hold equity securities.                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The introduction of the new expected credit loss
      impairment model is not expected to impact the Company, as the Company
      only sells to established commodity trading firms.
| |  | The reformed approach to hedge accounting is not expected
      to impact the Company, as the Company does not apply or expects to apply
      hedge accounting.                        

| | b) | IFRS 15 - Revenue from Contracts with Customers-
      In April 2016, the IASB issued IFRS 15 - Revenue from Contracts with
      Customers("IFRS 15") which supersedes IAS 11 - Construction
      Contracts, IAS 18 - Revenue, IFRIC 13 - Customer Loyalty
      Programmes, IFRIC 15 - Agreements for the Construction of Real
      Estate, IFRIC 18 - Transfers of Assets from Customers, and SIC
      31 - Revenue - Barter Transactions Involving Advertising Services.
      IFRS 15 establishes a single five-step model framework for determining the
      nature, amount, timing and uncertainty of revenue and cash flows arising
      from a contract with a customer. The standard is currently mandatory for
      annual periods beginning on or after January 1, 2018, with early adoption
      permitted. The Company plans to apply IFRS 15 at the date it becomes
      effective.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company is currently evaluating the potential impact
      of applying IFRS 15. The Company does not anticipate any changes in the
      gross amounts of revenue recognized but the timing of revenue recognition
      may differ under the new standard if the timing of transfer of control to
      customers is deferred and/or if there are additional performance
      obligations which are currently not recognized separately, such as
      shipping and insurance services arranged by the Company on behalf of its
      customers.                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | c) | IFRS 16 - Leases- In January 2016, the IASB
      published a new accounting standard, IFRS 16 - Leases("IFRS 16")
      which supersedes IAS 17 - Leases. IFRS 16 specifies how to
      recognize, measure, present and disclose leases. The standard provides a
      single lessee accounting model, requiring the recognition of assets and
      liabilities for all leases, unless the lease term is 12 months or less or
      the underlying asset has a low value. The standard is effective for annual
      periods beginning on or after January 1, 2019, with early adoption
      permitted if IFRS 15, has also been applied.                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company does not have any material lease contracts.
      The adoption of IFRS 16 is not expected to have any material impact upon
      the date it become effective.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

21

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|5. | CABALLO BLANCO PROPERTY SALE                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                   
|   | On July 20, 2016 (closing date), the Company sold the
      Caballo Blanco Property to Candelaria Mining Corp. Total consideration to
      be paid was $12,500 in cash and the assumption of the $5,000 (present
      value - $4,656) contingent liability payable to Goldgroup Mining Inc. This
      equates to a fair value of $17,156 on the closing date.
|   |                                                                                                                                                                                                                                                                                                                                                                   
|   | As at December 31, 2016, the Company had received $9,250
      from Candelaria in cash payments.                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                   
|   | Remaining cash payments are to be received as
    follows:                                                                                                                                                                                                                                                                                                        

| |  | $2,500 at the earlier occurrence of Candelaria receiving
      environmental permits or one year following the closing date; and,                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Up to $750 following the completion of negotiations and
      settlement with a local party related to land access and rental payments
      owed by the previous owner. As receipt of the remaining $750 is uncertain
      and subject to the terms of final settlement between Candelaria and the
      local party, a contingent asset has not been recognized. Any amounts
      received in relation to the remaining $750 will be recognized in the
      statement of earnings and comprehensive income in the period of receipt.

For the year ended December 31, 2016,
the Company recorded a loss on disposal of $856, representing the total
consideration less the book value of net assets sold and costs of disposal,
presented as follows:

| | Fair value of
      proceeds                             |   |        |  
| | -------------------------------------------------------- | - | ------ | -
| | Cash received                                            | $ | 9,250  |  
| | Other receivable                                         |   | 2,500  |  
| | Total consideration                                      | $ | 11,750 |  
| | Book value of net assets sold                            |   |        |  
| | Caballo Blanco exploration and evaluation
      property | $ | 17,165 |  
| | Provision for
      contingent payment                   |   | (4,656 | )
| | Total net assets                                         |   | 12,509 |  
| | Legal and other
      expenses                           |   | 97     |  
| | Loss on disposal                                         | $ | 856    |  

|   | During the six months ended June 30, 2016, the Caballo
      Blanco Property was classified as an asset held for sale and an impairment
      charge of $12,737 was recorded to reduce the carrying amount of the
      Caballo Blanco Property to its fair value.                                                                                                                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|6. | ACQUISITION OF NEWSTRIKE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | On May 26, 2015, the Company acquired all of the
      outstanding common shares of Newstrike exchanging 0.90 of the Companys
      shares (the Exchange ratio) and cash consideration of C$0.0001 for each
      common share of Newstrike. This resulted in 105,108,103 common shares of
      the Company being issued and C$12 ($9) cash being paid to the former
      shareholders of Newstrike.                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In addition to the 105,108,103 common shares, each
      Newstrike share option which gave the holder the right to acquire common
      shares of Newstrike, was exchanged for a share option which gave the
      holder the right to acquire common shares in the Company on the same basis
      as the Exchange ratio (the Replacement Options). The exercise price of
      the Replacement Options was determined by dividing the exercise price of
      the Newstrike share option by the Exchange ratio.

22

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|6. | ACQUISITION OF NEWSTRIKE
  (Continued)
|-- | --------------------------------------

The 5,962,500 Replacement Options
issued have been included in the purchase price at their fair value (weighed
average grant date fair value per Replacement Option was $0.25) based on the
Black-Scholes pricing model using the following weighted average assumptions:

| | Risk-free interest rate  |  | 1.0%            | 
| | ------------------------ |  | --------------- | 
| | Expected life of options |  | 0.4 - 6.2 years | 
| | Annualized volatility    |  | 62.0 - 64.0%    | 
| | Forfeiture rate          |  | 2.2%            | 
| | Dividend rate            |  | 0.0%            | 

The acquisition has been accounted for
by the Company as a purchase of assets and assumption of liabilities. The
acquisition did not qualify as a business combination under IFRS 3 - Business
Combinations, as the significant inputs, processes and outputs, that
together constitute a business, do not currently exist. The primary asset of
Newstrike was the Ana Paula Project in Guerrero, Mexico, an exploration and
evaluation stage gold property.

The total consideration was allocated
to the assets acquired and liabilities based on their relative fair values on
May 26, 2015, as follows:

| | Purchase price                                                        |   |        |  
| | --------------------------------------------------------------------- | - | ------ | -
| | Fair value of common shares issued, net of share issuance
      costs | $ | 63,820 |  
| | Fair value of share options issued                                    |   | 1,509  |  
| | Cash                                                                  |   | 9      |  
| | Transaction costs                                                     |   | 1,863  |  
| | Total
      consideration                                             | $ | 67,201 |  
| | Purchase price allocation                                             |   |        |  
| | Cash and cash equivalents                                             | $ | 786    |  
| | Trade and other receivables                                           |   | 2,382  |  
| | Advances and prepaid expenses                                         |   | 221    |  
| | Plant and equipment                                                   |   | 45     |  
| | Mineral properties and exploration and evaluation assets              |   | 67,088 |  
| | Accounts payable and accrued liabilities                              |   | (1,689 | )
| | Debenture                                                             |   | (1,632 | )
| | Net assets acquired                                                   | $ | 67,201 |  

23

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|7. | IMPAIRMENT                                                                                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                              
|   | At the end of each reporting period, the Company assesses
      whether there are any indicators, from external and internal sources of
      information, that an asset or cash generating unit may be impaired, or
      require impairment reversal, thereby requiring adjustment to the carrying
      value (note 3(m)).

|a) | Reversal of impairment charge                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | During the year ended December 31, 2016, in response to
      the sustained increase in the spot and forecast gold prices, combined with
      improved operations during the period, the Company announced significant
      changes to the San Francisco Mine plan, which foresees continued
      operations to 2023. This new mine plan significantly extends the expected
      life of mine, production profile and associated cash flows compared with
      the Companys previous estimates and accordingly, was considered to be an
      indicator of impairment reversal. A detailed assessment was completed on
      the recoverable value of the San Francisco Mine and related assets. As a
      result of this assessment, the Company recognized an impairment reversal
      in the amount of $23,699 increasing the mineral properties, plant and
      equipment value to its recoverable amount primarily due to the extension
      of the life of mine. This recovery constitutes a partial reversal of the
      impairment charge recorded during year ended December 31, 2015.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The recoverable value of the San Francisco Mine CGU was
      determined based on its fair value less cost of disposal estimated
      utilizing a discounted cash flow model. The projected cash flows used in
      recoverable value assessment are significantly affected by changes in
      assumptions for metal prices, changes in the amount of recoverable
      reserves, production cost estimates, future capital expenditures and
      discount rates. The discounted cash flow model is a Level 3 measurement in
      the fair value hierarchy. The key economic assumptions included in the
      model are a forecast gold price of $1,250 per ounce and discount rate of
      6%.                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|b) | Impairment charge                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The Company identified the following indicators of
      impairment during the year ended December 31,
2015:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |  | Sustained decrease in the gold price resulting in a loss
      from mining operations at the San Francisco Mine, thereby requiring a
      significant change to the mine plan as the existing mine plan was
      uneconomic at current and forecast gold prices.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sustained decrease in the market
      capitalization of the Company.                                                                                                                                                                                             

Due to significant changes to the San
Francisco Mine plan, which foresaw a curtailment of mining operations during the
fourth quarter of 2016 with the mine being placed on care and maintenance until
economic conditions improved, a detailed assessment was completed on the
recoverable value of the San Francisco Mine and related assets. As a result of
this assessment, the Company recognized an impairment charge in the amount of
$177,071 during the year ended December 31, 2015, to reduce the mineral
property, plant and equipment value to its recoverable amount primarily due to
the change in expected life of mine compared to previous forecasts.

The recoverable value of the San
Francisco Mine CGU was determined based on its fair value less cost of disposal
estimated utilizing a discounted cash flow model. The discounted cash flow model
is a Level 3 measurement in the fair value hierarchy. The key assumptions
included in the model were forecasted gold price of $1,150 per ounce and
discount rate of 6%. Forecasted production levels and operating costs were based
on historical operating and financial results.

24

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|7. | IMPAIRMENT (Continued)
      Inventories
|-- | ----------------------------------------

| | i.  | Ore in process                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | During the year ended December 31, 2015, based on the
      continued evaluation of actual recoveries realized in the irrigation and
      processing of ore tonnes stacked on the leach pads at the San Francisco
      Mine, the Company determined a revised estimate of the recoverable gold
      ounces contained in leach pad inventory. The revised estimate of
      recoverable gold ounces was less than previous projections which, combined
      with the decline in forecasted gold prices, resulted in an impairment
      charge of $35,039 against the ore in process inventory during the year
      ended December 31, 2015.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ii. | Non-current unprocessed ore stockpile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |     | Due to a sustained decrease in gold price, an impairment
      assessment was completed on the recoverability of the unprocessed ore
      stockpile during the year ended December 31, 2015. It was determined that
      this material could not be processed economically. As a result, an
      impairment charge of $6,125 was recognized against the unprocessed ore
      stockpile.                                                                                                                                                                                                                                                     

|   | Exploration and evaluation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During the year ended December 31, 2015, changes in the
      San Francisco Mine plan had resulted in the Company shifting its areas of
      exploration to focus on Ana Paula and Caballo Blanco. As a result, an
      impairment charge was recognized on all other capitalized exploration
      assets for a total of $6,870. The remaining net book value for exploration
      and evaluation assets, as at December 31, 2015 of $99,575, related solely
      to the Ana Paula and Caballo Blanco assets.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|8. | EXPENSES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|a) | Cost of sales:
|-- | --------------

| |                                                            |   | Years ended December 31, |  
| | ---------------------------------------------------------- | - | ------------------------ | -
| |                                                            |   | 2016                     |  
| | Costs of contract mining                                   | $ | 39,337                   |  
| | Crushing and gold recovery costs                           |   | 31,333                   |  
| | Mine site administration costs                             |   | 3,809                    |  
| | Transport and refining                                     |   | 330                      |  
| | Royalties                                                  |   | 623                      |  
| | Demobilization costs                                       |   | 1,398                    |  
| | Change in inventories                                      |   | (2,113                   | )
| | Production costs                                           |   | 74,717                   |  
| | Depreciation and depletion                                 |   | 14,299                   |  
| | Cost of sales
      (including depreciation and depletion) | $ | 89,016                   |  

25

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|8. | EXPENSES (Continued)
|-- | --------------------

|b) | Corporate and administrative
  expenses:
|-- | ----------------------------------------

| |                                             |  |      |   | Years ended December 31, | 
| | ------------------------------------------- |  | ---- | - | ------------------------ | 
| |                                             |  | Note |   | 2016                     | 
| | Salaries and termination benefits           |  |      | $ | 3,315                    | 
| | Consulting and professional fees            |  |      |   | 2,015                    | 
| | Share-based payments                        |  | 17b) |   | 837                      | 
| | Rent and office costs                       |  |      |   | 317                      | 
| | Administrative and other                    |  |      |   | 1,123                    | 
| | Corporate and
      administrative expenses |  |      | $ | 7,607                    | 

|c) | Finance expense:
|-- | ----------------

| |                                                                                    |  |      |   | Years ended December 31, | 
| | ---------------------------------------------------------------------------------- |  | ---- | - | ------------------------ | 
| |                                                                                    |  | Note |   | 2016                     | 
| | Interest on loan facility and equipment
      financing                            |  |      | $ | 597                      | 
| | Interest on debenture                                                              |  |      |   | 43                       | 
| | Accretion on extinguished liability                                                |  |      |   | 141                      | 
| | Accretion of loan facility                                                         |  |      |   | 736                      | 
| | Accretion of provision for site reclamation
      and closure and other provisions |  |      |   | 67                       | 
| | Gain on revaluation of Caballo Blanco contingent payment                           |  |      |   | -                        | 
| | Loss (gain) on revaluation of warrant
      liabilities                            |  | 16   |   | 1,308                    | 
| | Offering expense                                                                   |  | 16a) |   | 65                       | 
| | Finance expense                                                                    |  |      | $ | 2,957                    | 

|9. | TRADE AND OTHER
RECEIVABLES
|-- | ---------------------------

| |                                            |   | Years ended December 31, | 
| | ------------------------------------------ | - | ------------------------ | 
| |                                            |   | 2016                     | 
| | Trade receivable                           | $ | 1,322                    | 
| | VAT receivable (1)                         |   | 4,921                    | 
| | Receivable on Caballo Blanco Property sale |   | 2,500                    | 
| | Other receivables
      (2)                |   | 156                      | 
| |                                            | $ | 8,899                    | 

| | (1) | VAT receivable is value added tax payments made by the
      Company, which in Mexico and Canada are refundable. The Company elects to
      use VAT amounts owed to it to settle income tax instalments payable to the
      Mexican government. As a result, the Company currently pays no income tax
      cash instalments and receives reduced amounts of VAT cash refunds. During
      the year ended December 31, 2016, the Company collected $16,027 (December
      31, 2015 - $23,148). Subsequent to December 31, 2016, $3,509 of VAT was
      received by the Company.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Other receivables include an allowance of doubtful
      amounts of $92 (December 31, 2015 - $129).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

26

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|10. | INVENTORIES
|--- | -----------

| |                          |   | Years ended December 31, | 
| | ------------------------ | - | ------------------------ | 
| |                          |   | 2016                     | 
| | Ore in process           | $ | 6,347                    | 
| | Finished metal inventory |   | -                        | 
| | Supplies                 |   | 3,988                    | 
| |                          | $ | 10,335                   | 

|    | The costs of inventories recognized as an expense for the
      year ended December 31, 2016 were $70,670 (December 31, 2015 - $90,301)
      and are included in cost of sales. During the year ended December 31,
      2016, the Company recorded inventory impairments totalling $nil (December
      31, 2015 - $41,164) related to ore in process and unprocessed ore
      stockpile (note 7), and $nil (December 31, 2015 - $3,262) related to
      supplies inventory.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|11. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION                                                                                                                                                                                                                                                                                                                                                                                                       

ExplorationMineral
    
    
    Plant and
    
    
    andNote
    
    properties (b)
    
    
    equipment (1,2,3
    )
    
    evaluation (c)
    
    
    TotalCostAt January 1, 2016
    
    $
    176,089
    
    $
    104,361
    
    $
    108,253
    
    $
    388,703Expenditures
    
    
    1,303
    
    
    8,024
    
    
    5,839
    
    
    15,166Caballo Blanco Property sale
    5
    
    -
    
    
    -
    
    
    (29,902
    )
    
    (29,902
    )Change in reclamation obligation
    13
    
    (889
    )
    
    -
    
    
    -
    
    
    (889
    )At December 31, 2016
    
    
    176,503
    
    
    112,385
    
    
    84,190
    
    
    373,078Accumulated
      depreciation, depletion and impairmentAt January 1, 2016
    
    
    166,166
    
    
    93,157
    
    
    8,678
    
    
    268,001Depreciation and
      depletion
    
    
    10,201
    
    
    4,274
    
    
    -
    
    
    14,475Impairment of exploration and
      evaluation
    5
    
    -
    
    
    -
    
    
    12,737
    
    
    12,737Caballo Blanco Property
      sale
    5
    
    -
    
    
    -
    
    
    (12,737
    )
    
    (12,737
    )Impairment reversal of mineral properties, plant
      and equipment
    7a)
    
    (18,511
    )
    
    (5,188
    )
    
    -
    
    
    (23,699
    )At December 31, 2016
    
    
    157,856
    
    
    92,243
    
    
    8,678
    
    
    258,777Carrying amount at December 31, 2016
    
    $
    18,647
    
    $
    20,142
    
    $
    75,512
    
    $
    114,301


27

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|11. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION (Continued)
|--- | -------------------------------------------------------------------------------------

ExplorationMineral
    
    
    Plant and
    
    
    andNote
    
    properties (b)
    
    
    equipment (1,2,3
    )
    
    evaluation (c)
    
    
    TotalCostAt January 1, 2015
    
    $
    154,636
    
    $
    90,332
    
    $
    37,645
    
    $
    282,613Expenditures
    
    
    19,381
    
    
    13,984
    
    
    3,520
    
    
    36,885Acquisition
    
    
    -
    
    
    45
    
    
    67,088
    
    
    67,133Change in reclamation obligation
    13
    
    2,072
    
    
    -
    
    
    -
    
    
    2,072At December 31,
      2015
    
    
    176,089
    
    
    104,361
    
    
    108,253
    
    
    388,703Accumulated depreciation and depletionAt January 1, 2015
    
    
    35,712
    
    
    29,120
    
    
    1,808
    
    
    66,640Depreciation and depletion
    
    
    8,543
    
    
    8,877
    
    
    -
    
    
    17,420Impairment of
      mineral properties, plant and equipment, exploration and evaluation
    7b)
    
    121,911
    
    
    55,160
    
    
    6,870
    
    
    183,941At December 31, 2015
    
    
    166,166
    
    
    93,157
    
    
    8,678
    
    
    268,001Carrying amount
      at December 31, 2015
    
    $
    9,923
    
    $
    11,204
    
    $
    99,575
    
    $
    120,702


| | (1) | The Company entered into an agreement with an equipment
      supplier to finance the remaining portion of an equipment purchase
      totalling $4,862 of which the Company had previously paid $1,459. The
      financing agreement carries an annual interest rate of 7.2%. On November
      15, 2015, the Company renegotiated the terms of repayment. As a result,
      the remaining balance of $1,229 was payable in 19 monthly instalments with
      the final instalment being paid on April 25, 2017. The first six
      instalments was for the interest portion only with the remaining
      instalments to include equal principal repayments of $95. At December 31,
      2016, the current and long-term portions of the equipment financing total
      $378 and $nil, respectively (December 31, 2015 - $851 and $378,
      respectively).                                                                                                                                                                                                                                  
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | On November 2, 2015, the Company acquired the El Sauzal
      processing plant and infrastructure (El Sauzal Plant) from Goldcorp Inc.
      (Goldcorp) for a total consideration of C$8,000 ($6,055). The
      consideration was payable as C$1,000 ($764) in cash and C$3,000 ($2,291)
      in common shares on closing, along with C$4,000 ($3,000) due one year from
      closing. In connection with this acquisition the Company completed a
      private placement with Goldcorp for cash proceeds of C$6,000 ($4,616).
      This cash was restricted for the acquisition, disassembly and
      transportation of the El Sauzal Plant and accordingly the remaining amount
      at December 31, 2015, was presented as restricted cash of $2,316 on the
      consolidated statement of financial position. During the year ended
      December 31, 2016, all remaining restricted cash was spent on allowable
      activities. The El Sauzal Plant is considered to be an asset under
      construction and has a carrying value of $11,801 (December 31, 2015 -
      $7,392).
| | (3) | Plant and equipment includes construction-in-progress
      assets of $1,789 at the San Francisco Mine (December 31, 2015 -
    $nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

28

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|11. | MINERAL PROPERTIES, PLANT AND EQUIPMENT, EXPLORATION
      AND EVALUATION (Continued)
|--- | -------------------------------------------------------------------------------------

|a) | Carrying amount by
project
|-- | --------------------------

| |                      |   |            |  |   |           |  |   | Exploration |  |   |         | 
| | -------------------- | - | ---------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                      |   | Mineral    |  |   | Plant and |  |   | and         |  |   |         | 
| |                      |   | properties |  |   | equipment |  |   | evaluation  |  |   | Total   | 
| | At December 31, 2016 |   |            |  |   |           |  |   |             |  |   |         | 
| | San Francisco Mine   | $ | 18,647     |  | $ | 7,730     |  | $ | 496         |  | $ | 26,873  | 
| | Ana Paula Project    |   | -          |  |   | 12,412    |  |   | 75,016      |  |   | 87,428  | 
| |                      | $ | 18,647     |  | $ | 20,142    |  | $ | 75,512      |  | $ | 114,301 | 

| |                        |   |            |  |   |           |  |   | Exploration |  |   |         | 
| | ---------------------- | - | ---------- |  | - | --------- |  | - | ----------- |  | - | ------- | 
| |                        |   | Mineral    |  |   | Plant and |  |   | and         |  |   |         | 
| |                        |   | properties |  |   | equipment |  |   | evaluation  |  |   | Total   | 
| | At December 31, 2015   |   |            |  |   |           |  |   |             |  |   |         | 
| | San Francisco Mine     | $ | 9,923      |  | $ | 3,742     |  | $ | -           |  | $ | 13,665  | 
| | Ana Paula Project      |   | -          |  |   | 7,433     |  |   | 69,850      |  |   | 77,283  | 
| | Caballo Blanco Project |   | -          |  |   | -         |  |   | 29,725      |  |   | 29,725  | 
| | Other                  |   | -          |  |   | 29        |  |   | -           |  |   | 29      | 
| |                        | $ | 9,923      |  | $ | 11,204    |  | $ | 99,575      |  | $ | 120,702 | 

|b) | Mineral properties                                                                                                                                                                                                                                                                                
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                   
|   | The San Francisco Mine is located in Santa Ana, Sonora,
      Mexico which is formed by several adjacent claims. Commercial production
      began at San Francisco in April 2010. At December 31, 2016 and 2015,
      mineral properties included $nil unamortized deferred stripping
    costs.
|   |                                                                                                                                                                                                                                                                                                   
|c) | Exploration and evaluation                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                   
|   | The Company holds and is exploring a number of mineral
      properties in Mexico which are included in exploration and
    evaluation.                                                                                                                                                           

| | i.   | Ana Paula Project                                                                                                                                                                                                                                   
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                     
| |      | On May 26, 2015, the Company acquired Newstrike and its
      primary asset the Ana Paula Project in Guerrero, Mexico (note
6).                                                                                                                     
| |      |                                                                                                                                                                                                                                                     
| | ii.  | Caballo Blanco Gold Project                                                                                                                                                                                                                         
| |      |                                                                                                                                                                                                                                                     
| |      | On December 23, 2014, the Company closed an agreement to
      acquire 100% of the Caballo Blanco Gold Project, located in the state of
      Veracruz, Mexico. The Caballo Blanco Property was sold on July 20, 2016,
      to Candelaria (note 5).
| |      |                                                                                                                                                                                                                                                     
| | iii. | San Francisco Mine properties                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                     
| |      | The Company has title to the Patricia, Norma, El Foco,
      Pima, and Dulce claims located in the state of Sonora,
  Mexico.                                                                                                                       

29

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|12. | TRADE PAYABLES AND ACCRUED
  LIABILITIES
|--- | ----------------------------------------

| |                         |   | December 31, |  |   | December
      31, | 
| | ----------------------- | - | ------------ |  | - | ------------------ | 
| |                         |   | 2016         |  |   | 2015               | 
| | Trade payables (1)      | $ | 10,609       |  | $ | 26,794             | 
| | Income taxes payable    |   | 2,800        |  |   | 1,779              | 
| | Accrued liabilities (2) |   | 2,053        |  |   | 2,118              | 
| | Vendor loan             |   | 1,725        |  |   | 1,725              | 
| | Other                   |   | -            |  |   | 35                 | 
| |                         | $ | 17,187       |  | $ | 32,451             | 

| | (1) | Trade payables at December 31, 2016 include amounts due
      to Goldcorp of $nil in relation to the El Sauzal Plant acquisition (note
      11) (December 31, 2015 - C$4,000 ($2,890)).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Accrued liabilities at December 31, 2016 include amounts for bonuses of $1,007 (December 31, 2015 - $nil).                                                                              

|13. | PROVISION FOR SITE RECLAMATION AND
  CLOSURE
|--- | --------------------------------------------

| | Balance at December 31, 2014                         | $ | 1,865 |  
| | ---------------------------------------------------- | - | ----- | -
| | Accretion of discounted cash flows                   |   | 44    |  
| | Change in estimated cash flows and assumptions       |   | 2,072 |  
| | Balance at December 31, 2015                         | $ | 3,981 |  
| | Accretion of discounted cash flows                   |   | 56    |  
| | Change in
      estimated cash flows and assumptions |   | (889  | )
| | Balance at December 31, 2016                         | $ | 3,148 |  

The provision for site reclamation and
closure consists of mine closure costs, reclamation and retirement obligations
for mine facilities and infrastructure.

During the year ended December 31,
2016, the Company completed its annual reassessment of the provision for site
reclamation and closure based on independent technical reports. As a result of
this reassessment, the provision was decreased by $889 (December 31, 2015 -
increase in provision of $2,072).

The total undiscounted amount of
estimated cash flows required to settle the retirement obligations of the San
Francisco Mine is $4,195 (December 31, 2015 - $4,166). The cash flows have been
inflated by the rate of 3.0% (December 31, 2015 - 3.0%) and discounted using the
pre-tax risk-free rate of 7.31% (December 31, 2015 - 1.31%) . The provision for
site reclamation and closure is not expected to be paid in the near term and is
intended to be funded from cash balances at the time of the mine closure.

30

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|14. | LOAN FACILITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Company was a party to a secured loan facility with Sprott Resource Lending Partnership (“Sprott”) for a principal amount of $10,223, which carried an annual interest rate of 9.0% paid monthly and was due on
December 31, 2015. Under the terms of the loan facility, the Company had pledged all of its assets (including the assets of its subsidiaries) in favour of Sprott as security over the loan facility. In addition, the subsidiaries had each provided
guarantees to Sprott for the repayment of any amounts advanced to the Company under the terms of the loan facility. On December 31, 2015, the loan facility was extended to January 31, 2016 and the Company incurred transaction costs of $204.                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | On January 26, 2016, the Company finalized an agreement to re-finance the secured loan facility with Sprott and Goldcorp (collectively, the “Lenders”). The re-financed loan facility was effective as of January 26, 2016
and had a maturity date of June 30, 2016. Interest was payable monthly at the rate of 12.0% per annum, and the principal amount outstanding was payable on the maturity date.                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | In consideration of the re-financing, the Company agreed to pay a bonus of $409 to the Lenders on the earlier of the repayment of the loan facility and June 30, 2016. The bonus was payable at the option of Sprott and Goldcorp,
each in relation to its proportion of the credit facility, in cash or in common shares of the Company. Any shares issued in connection with the bonus payment would be issued at a deemed price equal to the volume weighted average price per share on
the TSX for the ten days immediately preceding issuance, less 10.0%. The effective interest rate of the re- financed loan facility was 23.0%.                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | On June 14, 2016, the Company repaid the $10,223 loan facility, the bonus and accrued interest. Sprott and Goldcorp optioned to receive $204 and $70 cash bonuses, respectively, with Goldcorp additionally receiving
550,000 common shares, valued at $134, of the Company in lieu of their portion of the cash bonus. With repayment of the secured loan facility complete, the Lenders released the Company of its pledge on the Company’s assets and all other
obligations per the re-financed loan facility agreement dated January 26, 2016.                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|15. | DEBENTURE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | As part of the acquisition of Newstrike (note 6), the Company assumed an obligation for a debenture of C$2,000 ($1,542). The terms of the debenture required annual cash interest of 5%, paid semi-annually, and 225 common
shares of the Company for every C$100 ($75) principal value outstanding on a monthly basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | On September 17, 2015, the Company renegotiated the terms of the debenture to extend the maturity date to May 31, 2016. As part of the negotiation, the Company agreed to a one-time issuance of 86,667 common shares ($20) of the
Company. In addition, 2,167 common shares of the Company were to be issued per month for every C$100 ($75) principal value outstanding retrospective to June 1, 2015. The total accrued common shares at September 17, 2015, was 154,579
($35). Cash interest accrued only on amounts remaining unpaid after the maturity date or on default at a rate of 5%, payable semi-annually. The renegotiation did not constitute a substantial modification of the debenture and the Company
recognized a charge of $98 in connection with the renegotiation.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The common share interest component of the debenture constituted an embedded derivative and was measured at fair value (a Level 1 fair value measurement). At December 31, 2015, the value of the embedded derivative, included in the
carrying value of the debenture, was $29. At December 31, 2015, the Company had accrued common share interest of 43,340 common shares ($6) included in the carrying value of the debenture.                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | On June 29, 2016, the Company settled the debenture with a cash payment of C$2,000 ($1,540) and all remaining common share interest payments were settled (note 17).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

31

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|16. | WARRANT LIABILITY
|--- | -----------------

|a) | Bought deal financing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | On November 30, 2016, the Company closed a bought deal
      financing issuing 36,400,000 units of the Company. Each unit included one
      common share of the Company and one-half of one common share purchase
      warrant. 18,200,000 warrants were issued as a result of the financing. The
      warrants are listed for trading on the Toronto Stock Exchange under the
      symbol TMM.W. The opening price on November 30, 2016 was C$0.07 ($0.05).
      Each warrant is exercisable for one common share of the Company at a price
      of C$0.70 ($0.52) per share prior to May 30, 2018. Offering expense
      allocated to the warrants was $65 (note 8(c)).                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The share purchase warrants are classified as a warrant
      liability under the principles of IAS 39 - Financial Instruments
      Recognition and Measurement(note 3(i)), as the share purchase
      warrants are considered a derivative financial instrument given that their
      exercise price is in Canadian dollars (C$) while the functional currency
      of the Company is the US dollar. Accordingly, the outstanding warrants are
      remeasured to fair value at each reporting date with change in the fair
      value charged to finance expense (note 8(c)).                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company used the opening price to determine the fair
      value of the share purchase warrants at the date of issuance. On November
      30, 2016, the share purchase warrants were recognized at a fair value of
      $881.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | At December 31, 2016, the share purchase warrants were
      revalued to a fair value of $1,220, using the closing price of C$0.09
      ($0.07), recognizing a loss of $339 on the revaluation of the share
      purchase warrant liability (note 8(c)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|b) | Private placement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | On October 19, 2015, in connection with a C$6,000
      ($4,616) non-brokered private placement with Goldcorp, the Company issued
      10,000,000 share purchase warrants. Each share purchase warrant is
      exercisable for one common share of the Company at a price of C$0.35
      ($0.27) per share for a term of 24 months. Following the eleven month
      anniversary date, at the election of the Company, the share purchase
      warrants would be subject to an accelerated cancellation period of 10 days
      if the Companys closing share price meets or exceeds C$0.60 ($0.46) per
      share for a period of 20 consecutive days. Should the Company elect to
      cancel the warrants, payment to the warrant holder would be required in
      the amount of the difference between the exercise price and the five day
      volume weighted average share price for each warrant cancelled. As at
      December 31, 2016 and 2015 there were 10,000,000 share purchase warrants
      outstanding.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The share purchase warrants are classified as a warrant
      liability under the principles of IAS 39 - Financial Instruments
      Recognition and Measurement(note 3(i)), as the share purchase
      warrants are considered a derivative financial instrument given that their
      exercise price is in Canadian dollars (C$) while the functional currency
      of the Company is the US dollar. Accordingly, the outstanding warrants are
      remeasured to fair value at each reporting date with change in the fair
      value charged to finance expense (note 8(c)).                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company used the Black-Scholes option pricing model
      to determine the fair value of the share purchase warrants at the date of
      issuance. On October 19, 2015, the share purchase warrants were recognized
      at a fair value of $888 using the following weighted average assumptions
      for the Black-Scholes option pricing:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | Risk-free interest rate  |  | 0.50%     | 
| | ------------------------ |  | --------- | 
| | Expected life of options |  | 2.0 years | 
| | Annualized volatility    |  | 73.1%     | 
| | Dividend rate            |  | 0.0%      | 

At issuance, the remainder of the
private placement proceeds, totalling $3,729, was allocated to issued capital
using the residual method.

32

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|16. | WARRANT LIABILITY (Continued)                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                              
|    | On December 31, 2016, the share purchase warrants were
      revalued to a fair value of $1,251 (December 31, 2015 - $282) using the
      following weighted average assumptions for the Black-Scholes option
      pricing:

| |                          |  | Years
      ended December 31, | 
| | ------------------------ |  | ------------------------------ | 
| |                          |  | 2016                           | 
| | Risk-free interest rate  |  | 0.69%                          | 
| | Expected life of options |  | 0.8 years                      | 
| | Annualized volatility    |  | 97.2%                          | 
| | Dividend rate            |  | 0.0%                           | 

|    | At December 31, 2016, the Company recognized a loss of
      $969 (December 31, 2015 - gain of $606) on the revaluation of the share
      purchase warrant liability (note 8(c)).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                   
|17. | EQUITY                                                                                                                                                                            

|a) | Authorized share
capital
|-- | ------------------------

| |  | Unlimited number of common shares without par value.
      These shares have voting rights and their holders are entitled to receive
      dividend payments; and,                                                                               
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unlimited number of convertible preference shares without
      par value, with the same rights as the common shares on dissolution and
      similar events. These shares have no voting rights and are not entitled to
      dividend payments.

The Company had the following common
share transactions during the year ended December 31, 2016:

| |  | The Company issued 301,936 common shares valued at $80 to
      settle debenture common share interest (note 15).                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company issued 550,000 common shares valued at $134
      to settle bonus payment on extinguishment of loan facility to Goldcorp
      (note 14).                                        
| |  | The Company issued 3,044,476 common shares valued at $848
      in connection to termination benefits.                                                                                       
| |  | The Company closed a bought deal financing and issued
      36,400,000 common shares for gross proceeds of C$18,837 ($14,030), with
      transaction costs of C$1,401 ($1,043) (note 16(a)).

The Company had the following common
share transactions during the year ended December 31, 2015:

| |  | The Company completed the acquisition of Newstrike and
      issued 105,108,103 common shares valued at $63,820 (note 6).                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company issued 20,000,000 common shares valued at
      $3,729 on closing of the private placement with Goldcorp (note 16(b)).
      Cash proceeds of C$6,000 ($4,616) were restricted for the acquisition,
      disassembly and transportation of the El Sauzal plant (note 11).
| |  | The Company issued 10,000,000 common shares valued at
      $2,291 in connection with the El Sauzal Plant acquisition from Goldcorp
      (note 11).                                                                                                                                  
| |  | The Company issued 346,708 common shares valued at $74 to
      settle debenture common share interest (note 15).                                                                                                                                                                     

At December 31, 2016, there were
355,628,602 issued and outstanding common shares (December 31, 2015 -
315,332,190). The Company does not currently pay dividends and entitlement will
only arise upon declaration.

33

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|17. | EQUITY (Continued)
|--- | ------------------

|b) | Share options                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                         
|   | The Company has an incentive share option plan (the
      plan) in place under which it is authorized to grant share options to
      executive officers, directors, employees and consultants. The plan allows
      the Company to grant share options up to a maximum of 10.0% of the number
      of issued shares of the Company.
|   |                                                                                                                                                                                                                                                                                                                                         
|   | Share options granted under the plan will have a term not
      to exceed five years, have an exercise price not less than the Discounted
      Market Price as defined by the TSX Corporate Finance Manual and vest over
      periods up to eighteen months.                                                                          
|   |                                                                                                                                                                                                                                                                                                                                         
|   | Share option transactions and the number of share options
      outstanding during the year ended December 31, 2016 and 2015, are
      summarized as follows:                                                                                                                                                                          

| |                                        |  | Number
      of share |   |  | Weighted
      average | 
| | -------------------------------------- |  | --------------------- | - |  | ---------------------- | 
| |                                        |  | options               |   |  | exercise price (C$)    | 
| | Outstanding at January 1, 2015         |  | 12,900,000            |   |  | 1.85                   | 
| | Granted                                |  | 11,637,500            |   |  | 0.89                   | 
| | Expired                                |  | (2,997,000            | ) |  | 0.85                   | 
| | Forfeited                              |  | (75,000               | ) |  | 0.75                   | 
| | Outstanding at December 31, 2015       |  | 21,465,500            |   |  | 1.47                   | 
| | Granted                                |  | 2,550,000             |   |  | 0.33                   | 
| | Expired                                |  | (5,236,000            | ) |  | 2.14                   | 
| | Forfeited                              |  | (925,000              | ) |  | 0.87                   | 
| | Outstanding at December 31, 2016       |  | 17,854,500            |   |  | 1.15                   | 
| | Exercisable at
      December 31, 2016 |  | 13,542,000            |   |  | 1.31                   | 

Share options outstanding and
exercisable at December 31, 2016 are as follows:

Weighted
    
    
    WeightedWeighted
    average
    
    Weighted
    averageExercise
    Number of
    average
    remaining life
    Number of
    average
    remaining lifeprice range
    options
    exercise price
    of options
    options
    exercise price
    of options(C$)
    outstanding
    (C$)
    (years)
    exercisable
    (C$)
    (years)0.25 - 1.00
    10,538,500
    0.56
    3.81
    6,851,000
    0.61
    3.781.01 - 2.00
    4,315,000
    1.46
    2.60
    3,690,000
    1.44
    2.572.01 - 3.12
    3,001,000
    2.76
    1.70
    3,001,000
    2.76
    1.7017,854,500
    1.15
    3.16
    13,542,000
    1.31
    2.99


There were nil share options exercised
during the year ended December 31, 2016 (year ended December 31, 2015 -
nil).

The fair value of share options
recognized as an expense during the year ended December 31, 2016 was $837 (year
ended December 31, 2015 - $1,573). There were 2,550,000 share options granted
during the year ended December 31, 2016 (year ended December 31, 2015 -
11,637,500).

During the years ended December 31,
2016 and 2015, the weighted average grant date fair value per option of the
share options granted was C$0.19 ($0.14) and C$0.29 ($0.21), respectively.

34

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|17. | EQUITY (Continued)                                                                                                                                                                                    
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                       
|    | The following are the weighted average assumptions used
      for the Black-Scholes option pricing model valuation of share options
      granted during the years ended December 31, 2016 and
  2015:

| |                          |  | Years ended December 31, | 
| | ------------------------ |  | ------------------------ | 
| |                          |  | 2016                     | 
| | Risk-free interest rate  |  | 1.0%                     | 
| | Expected life of options |  | 5.0 years                | 
| | Annualized volatility    |  | 73.0%                    | 
| | Forfeiture rate          |  | 2.2%                     | 
| | Dividend rate            |  | 0.0%                     | 

|    | The risk-free rate of periods within the expected life of
      the share option is based on the Canadian government bond rate. The
      annualized volatility and forfeiture rate assumptions are based on
      historical results.                                                                                             
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                    
|18. | INCOME TAXES                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                    
|    | For the year ended December 31, 2016, the Company
      incurred $3,362 of current tax expense (December 31, 2015 - $432). The
      increase in current tax expense in 2016 primarily relates to the increase
      in profitability at the San Francisco Mine compared to 2015.                                                  
|    |                                                                                                                                                                                                                                                                                                                                    
|    | For the year ended December 31, 2016, the Company
      recognized $870 of deferred tax expense (December 31, 2015 - $50,690
      deferred tax recovery). The deferred tax expense in 2016 primarily relates
      to timing differences reversal related to the impairment reversal of
      mineral properties and other assets.

|a) | Rate reconciliation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Income tax expense differs from the amount that would
      result by applying the combined Canadian federal and provincial income tax
      rates to earnings before income taxes. Substantially all of the Companys
      taxable income for the year ended December 31, 2016 is generated in Mexico
      and is subject to Mexicos 30.0% tax rate (December 31, 2015 - 30.0%). The
      primary driver of the change in effective tax rate for the year ended
      December 31, 2016 (11.8%) and the year ended December 31, 2015 (22.7%) was
      the impact of tax losses and temporary differences generated at the San
      Francisco Mine.

35

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|18. | INCOME TAXES (Continued)                                                                                                                                                                                                   
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                            
|    | The following is a reconciliation of income taxes
      calculated at the combined Canadian federal and provincial statutory tax
      rate to the income tax expense for the years ended December 31, 2016 and
      2015:

| |                                                                |   | Years ended December 31, |  
| | -------------------------------------------------------------- | - | ------------------------ | -
| |                                                                |   | 2016                     |  
| | Earnings (loss) before income taxes                            | $ | 35,970                   |  
| | Combined Canadian federal and provincial income tax rates      |   | 26.0%                    |  
| | Expected income tax expense (recovery)                         |   | 9,352                    |  
| | Items that cause an increase (decrease):                       |   |                          |  
| | Effect of
      different tax rates in foreign jurisdiction    |   | 1,605                    |  
| | Non-deductible expenses and
      Mexico inflation adjustments |   | 1,480                    |  
| | Foreign exchange                                               |   | (1,114                   | )
| | Utilization of previously
      unrecognized tax losses        |   | (8,278                   | )
| | Mexican special
      mining duty                              |   | 971                      |  
| | Change in unrecognized deferred
      income tax assets        |   | (1,266                   | )
| | Other                                                          |   | 1,482                    |  
| | Income tax
      expense (recovery)                            | $ | 4,232                    |  

|b) | Deferred tax assets and liabilities                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                         
|   | The composition of the Company's net deferred income tax
      liabilities at December 31, 2016 and 2015 are as
follows:

| |                                                                           |   | December 31, |   |   | December
      31, |  
| | ------------------------------------------------------------------------- | - | ------------ | - | - | ------------------ | -
| |                                                                           |   | 2016         |   |   | 2015               |  
| | Deferred income tax assets:                                               |   |              |   |   |                    |  
| | Non-capital losses                                                        | $ | 1,723        |   | $ | 1,684              |  
| |                                                                           |   | 1,723        |   |   | 1,684              |  
| |                                                                           |   |              |   |   |                    |  
| | Deferred income tax liabilities:                                          |   |              |   |   |                    |  
| | Mineral properties, plant and
      equipment, exploration and evaluation |   | (1,949       | ) |   | (311               | )
| | Other                                                                     |   | (3,128       | ) |   | (2,678             | )
| |                                                                           |   | (5,077       | ) |   | (2,989             | )
| | Deferred income tax liabilities, net                                      | $ | (3,354       | ) | $ | (1,305             | )

The Company's unrecognized tax losses,
deductible temporary differences, and tax credits at December 31, 2016 and 2015
are as follows:

| |                                                                           |   | December 31, |  |   | December
      31, | 
| | ------------------------------------------------------------------------- | - | ------------ |  | - | ------------------ | 
| |                                                                           |   | 2016         |  |   | 2015               | 
| | Non-capital losses                                                        | $ | 82,645       |  | $ | 112,872            | 
| | Mineral properties, plant and equipment, exploration and
      evaluation |   | 301          |  |   | 38,571             | 
| | Share issuance costs                                                      |   | 1,799        |  |   | 1,288              | 
| |                                                                           | $ | 84,745       |  | $ | 152,731            | 

36

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|18. | INCOME TAXES
(Continued)
|--- | ------------------------

|c) | Non-capital losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | At December 31, 2016, the Company has losses for income
      tax purposes in Canada and Mexico of $38,144 (December 31, 2015 - $37,053)
      and $50,860 (December 31, 2015 - $82,137), respectively, which may be used
      to reduce future taxable income. The Canadian losses, if not utilized,
      will expire beginning 2028 through to 2035, while the Mexican losses, if
      not utilized, will expire beginning 2016 through to 2026. Of these
      Canadian and Mexican amounts, $6,359 (December 31, 2015 - $5,279) and $nil
      (December 31, 2015 - $1,039), respectively, have been offset against
      recognized deferred tax liabilities.

|19. | EARNINGS (LOSS) PER
SHARE
|--- | -------------------------

Year ended December 31, 2016
    
    
    Year ended December 31, 2015Weighted
    
    
    
    
    
    
    
    
    WeightedEarnings
    
    
    average
    
    
    
    
    
    
    
    
    averagefor the
    
    
    shares
    
    
    Earnings
    
    
    Loss for
    
    
    shares
    
    
    Loss peryear
    
    
    outstanding
    
    
    per
      share
    
    
    the
      year
    
    
    outstanding
    
    
    shareBasic EPS
    $
    31,738
    
    
    320,989,300
    
    $
    0.10
    
    $
    (190,311
    )
    
    248,620,420
    
    $
    (0.77
    )Effect of dilutive securities:Share options
    
    -
    
    
    671,779
    
    
    -
    
    
    -
    
    
    -
    
    
    -Warrants
    
    -
    
    
    2,532,474
    
    
    -
    
    
    -
    
    
    -
    
    
    -Diluted EPS
    $
    31,738
    
    
    324,193,553
    
    $
    0.10
    
    $
    (190,311
    )
    
    248,620,420
    
    $
    (0.77
    )


|    | At December 31, 2016, 17,854,500 (December 31, 2015 -
      21,465,500) share options were outstanding, of which 15,779,500 (December
      31, 2015 - 21,465,500) were anti-dilutive because the underlying exercise
      price exceeded the average market price for the year ended December 31,
      2016.                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                  
|    | At December 31, 2016, 10,000,000 (December 31, 2015 -
      10,000,000) private placement share purchase warrants (note 16(b)) were
      outstanding, of which nil (December 31, 2015 - 10,000,000) were
      anti-dilutive because the underlying exercise price exceeded the average
      market price for the year ended December 31, 2016.
|    |                                                                                                                                                                                                                                                                                                                                                  
|    | At December 31, 2016, 18,200,000 bought deal financing
      share purchase warrants (note 16(a)) were outstanding, all of which were
      anti-dilutive because the underlying exercise price exceeded the average
      market price for the year ended December 31, 2016.                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                  
|20. | SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH
      FLOWS                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                  
|    | As at December 31, 2016, the Company held $20,045 of cash
      (December 31, 2015 - $11,481) and $13,832 of cash equivalents (December
      31, 2015 - $18).                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                  
|    | Significant non-cash transactions were as
  follows:                                                                                                                                                                                                                                                                                             

| |                                                      |  |      |  |   | Year ended December 31, | 
| | ---------------------------------------------------- |  | ---- |  | - | ----------------------- | 
| |                                                      |  | Note |  |   | 2016                    | 
| | Shares issued in lieu of termination
      benefits  |  | 17   |  | $ | 848                     | 
| | Shares issued on loan extinguishment                 |  | 17   |  | $ | 134                     | 
| | Shares issued as payment of debenture
      interest |  | 17   |  | $ | 80                      | 
| | Shares issued to acquire Newstrike                   |  | 17   |  |   | -                       | 
| | Shares issued for El Sauzal Plant acquisition        |  | 17   |  |   | -                       | 

37

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|21. | FINANCIAL INSTRUMENTS AND RISK
  MANAGEMENT
|--- | -------------------------------------------

|a) | Fair value measurement of financial assets and
      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Company has established a fair value hierarchy that
      reflects the significance of inputs of valuation techniques used in making
      fair value measurements as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Level 1 - quoted prices in active markets for identical
      assets or liabilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Level 2 - inputs other than quoted prices included in
      Level 1 that are observable for the asset or liability, either directly
      (i.e. as prices) or indirectly (i.e. from derived prices); and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Level 3 - inputs for the asset or liability that are not
      based upon observable market data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | At December 31, 2016 and 2015, none of the Companys
      financial assets and liabilities are measured and recognized in the
      consolidated statement of financial position at fair value with the
      exception of the embedded derivative included in the debenture (note 15),
      the share purchase warrants (note 16), and the derivative asset (note
      21(b)).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The carrying values of cash and cash equivalents, trade
      and other receivables, trade payables, vendor loan and equipment financing
      approximate their fair value due to their short-term nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | At December 31, 2016 and 2015, there were no financial
      assets or liabilities measured and recognized in the consolidated
      statement of financial position at fair value that would be categorized as
      Level 2 or Level 3 in the fair value hierarchy above with the exception of
      the outstanding private placement share purchase warrants (note 16(b)),
      and the derivative asset (note 21(b)), which are Level 2 fair value
      measurements.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|b) | Risk management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Companys primary business activities consist of the
      acquisition, exploration, development and operation of mineral resource
      properties in Mexico. The Company examines the various financial risks to
      which it is exposed and assesses the impact and likelihood of occurrence.
      These risks may include credit risk, commodity price risk, currency risk,
      liquidity risk, and interest rate risk. The Companys risk management
      program strives to evaluate the unpredictability of financial and
      commodity markets and its objective is to minimize the potential adverse
      effects of such risks on the Companys financial performance, where
      financially feasible to do so. When deemed material, these risks may be
      monitored by the Companys corporate finance group and they are regularly
      discussed with the Board of Directors or one of its
  committees.

| | i. | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | Counterparty credit risk is the risk that the financial
      benefits of contracts with a specific counterparty will be lost if a
      counterparty defaults on its obligations under the contract. This includes
      any cash amounts owed to the Company by those counterparties, less any
      amounts owed to the counterparty by the Company where a legal right of
      set-off exists and also includes the fair values of contracts with
      individual counterparties which are recorded in the consolidated financial
      statements.                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The Companys credit risk is predominantly limited to
      cash and cash equivalent balances held in financial institutions, the
      recovery of VAT receivable from the Mexican tax authorities, any gold and
      silver sales and related receivables and other receivables. The maximum
      exposure to the credit risk is equal to the carrying value of such
      financial assets. At December 31, 2016, the Company expects to recover the
      full amount of such assets, less any allowance for doubtful accounts in
      trade and other receivables (note 9).
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The objective of managing counterparty credit risk is to
      minimize potential losses in financial assets. The Company assesses the
      quality of its counterparties, taking into account their credit worthiness
      and reputation, past performance and other
factors.                                                                                                                                                                                                                                                                                                  

38

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|21. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

| |      | Cash and cash equivalents are only deposited with or held
      by major financial institutions where the Company conducts its business.
      In order to manage credit and liquidity risk, the Company invests only in
      highly rated investment grade instruments that have maturities of three
      months or less. Limits are also established based on the type of
      investment, the counterparty and the credit rating.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | Gold and silver sales are made to a limited number of
      large international organizations specializing in the precious metals
      markets. The Company believes them to be of sound credit worthiness, and
      to date, all receivables have been settled in accordance with agreed upon
      terms and conditions. The Mexican tax authorities with whom the Company
      holds a VAT receivable balance, are also deemed to be of sound credit
      worthiness.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ii.  | Commodity price risks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | The Company is exposed to price risk associated with the
      volatility of the market price of commodities, in particular gold and
      silver, and also to many consumables that are used in the production of
      gold and silver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | The prices of most commodities are determined in
      international markets and as such the Company has limited or no ability to
      control or predict the future level of most commodity prices. In some
      instances, the Company may have the ability to enter into derivative
      financial instruments to manage the Companys exposure to changes in the
      price of commodities such as gold, silver, oil and electricity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | As at December 31, 2016, the Company entered into option
      contracts whereby the Company purchased the option to sell gold ounces at
      a set price (put option) and financed the purchase price of this put
      option by selling the right to a third party to purchase a number of the
      Companys gold ounces at a set price (call option). The Company has
      placed a minimum floor sales price and a maximum sales price on the ounces
      that are subject to these contracts. A total of 17,100 gold ounces were
      placed under these contracts with expiry dates through to December 26,
      2017 with floor prices at $1,250 per gold ounce and a weighted average
      maximum sales price of $1,375 per gold ounce. At March 8, 2017, all 17,100
      options contracts were unsettled. The carrying value of the derivative
      asset is $1,875 (December 31, 2015 - $nil) based on the valuation of the
      outstanding gold option contracts using Level 2 inputs and valuation
      techniques.
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | During the year ended December 31, 2016, 3,200 call
      options and 5,000 put options were settled resulting in a derivative gain
      of $128 (December 31, 2015 - $nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | Subsequent to December 31, 2016, a total of 6,600 gold
      ounces were placed under the above contracts with expiry dates through to
      May 26, 2017, with floor prices at $1,200 per gold ounce and a sales price
      of $1,310 per gold ounce. At March 8, 2017, all 6,600 options contracts
      were unsettled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | iii. | Currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | The Companys functional currency is the US dollar and
      therefore the Companys earnings and comprehensive income are impacted by
      fluctuations in the value of foreign currencies in relation to the US
      dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |      | The table below summarizes the net monetary assets and
      liabilities held in foreign currencies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| |                                                         |   | December 31, |  |   | December
      31, |  
| | ------------------------------------------------------- | - | ------------ |  | - | ------------------ | -
| |                                                         |   | 2016         |  |   | 2015               |  
| | Canadian dollar net monetary assets
      (liabilities) | $ | 12,427       |  | $ | (5,934             | )
| | Mexican peso net
      monetary assets                  |   | 2,306        |  |   | 6,126              |  
| |                                                         | $ | 14,733       |  | $ | 192                |  

39

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|21. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (Continued)
|--- | -----------------------------------------------------------

| |     | The effect on earnings before income tax at December 31,
      2016 of a 10.0% change in the foreign currencies against the US dollar on
      the above mentioned net monetary assets and liabilities of the Company is
      estimated to be an increase/decrease of $1,473 (December 31, 2015 - $19)
      assuming that all other variables remained constant.                                                                  
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The calculations above are based on the Companys
      statement of financial position exposure at December 31, 2016. Subsequent
      to year end, the Company converted cash of C$13,000 ($9,886) to US
      dollars.                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | iv. | Liquidity risk                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | Liquidity risk is the risk that the Company will
      encounter difficulty in meeting obligations associated with its financial
      liabilities that are settled by delivering cash or another financial
      asset. The Company has a planning and budgeting process in place to help
      determine the funds required to support the Companys normal operating
      requirements and its exploration and production plans.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | In the normal course of business, the Company enters into
      contracts and performs business activities that give rise to commitments
      for future minimum payments. The Company has no concentrations of
      liquidity risk.                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | A summary of future operating commitments is presented in
      note 24.                                                                                                                                                                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | v.  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Companys interest revenue earned on cash and
      interest expense incurred on the equipment financing are exposed to
      interest rate risk. The Company does not enter into derivative contracts
      to manage this risk, and the Companys exposure to interest rate risk is
      very low as the Company has a fixed interest rate on the equipment
      financing.                                                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The Company has elected not to enter into interest rate
      swaps or other instruments to actively manage such risks.                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | vi. | Fair value disclosures                                                                                                                                                                                                                                                                                                                                                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | At December 31, 2016 and 2015, none of the Companys
      financial assets and liabilities are measured and recognized in the
      consolidated statement of financial position at fair value with the
      exception of the outstanding share purchase warrants (note 16) and the
      derivative asset (note 21(b))                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |     | The carrying values of cash and cash equivalents,
      restricted cash, trade and other receivables, trade payables and accrued
      liabilities, equipment financing, vendor loan, loan facility, and the
      debenture approximate their fair value due to their short-term
    nature.                                                                                                                                       

|22. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                     
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | The Companys related parties include key management
      personnel and any transactions with such parties for goods and/or services
      are made on regular commercial terms and are considered to be at arms
      length. During the years ended December 31, 2016 and 2015, the Company did
      not enter into any transactions with related parties.
|    |                                                                                                                                                                                                                                                                                                                                                                
|    | Key management are those personnel having the authority
      and responsibility for planning, directing, and controlling the Company.
      Salaries and benefits, bonuses and share-based payments are included in
      corporate and administrative expenses.                                                                                              

40

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|22. | RELATED PARTY TRANSACTIONS (Continued)
|--- | --------------------------------------
|    |                                       
|    | Key management compensation
includes: 

| |                            |   | Years ended December 31, | 
| | -------------------------- | - | ------------------------ | 
| |                            |   | 2016                     | 
| | Salaries and benefits      | $ | 881                      | 
| | Bonuses                    |   | 1,008                    | 
| | Share-based payments       |   | 672                      | 
| | Termination
      benefits |   | -                        | 
| |                            | $ | 2,561                    | 

|23. | MANAGEMENT OF CAPITAL                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                 
|    | The Companys objectives of capital management are
      intended to safeguard the Companys normal operating requirements on an
      ongoing basis and the continued development and exploration of its mineral
      properties. At December 31, 2016, the capital of the Company consists of
      consolidated equity and equipment financing, net of
cash.

| |                                                                   |   | December 31, |   |   | December
      31, |  
| | ----------------------------------------------------------------- | - | ------------ | - | - | ------------------ | -
| |                                                                   |   | 2016         |   |   | 2015               |  
| | Equity                                                            | $ | 143,086      |   | $ | 96,462             |  
| | Equipment financing                                               |   | 378          |   |   | 1,229              |  
| | Loan facility                                                     |   | -            |   |   | 10,019             |  
| | Debenture                                                         |   | -            |   |   | 1,480              |  
| |                                                                   |   | 143,464      |   |   | 109,190            |  
| | Less: Cash and
      cash equivalents (including restricted cash) |   | (33,877      | ) |   | (11,499            | )
| |                                                                   | $ | 109,587      |   | $ | 97,691             |  

In order to facilitate the management
of its capital requirements, the Company prepares expenditure budgets that are
updated as necessary depending on various factors, including successful capital
deployment and general industry conditions.

The Company also has in place a
planning, budgeting and forecasting process which is used to identify the amount
of funds required to ensure the Company has appropriate liquidity to meet short
and long-term operating objectives. In order to maintain or adjust its capital
structure, the Company may issue new shares or debt.

At December 31, 2016, the Company is
not subject to any externally imposed capital requirements. At December 31,
2015, the Company was subject to externally imposed capital requirements related
to the use of restricted cash for the acquisition, disassembly and
transportation of the El Sauzal plant (note 11).

41

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|24. | COMMITMENTS AND CONTINGENCIES                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                    
|    | A summary of undiscounted liabilities and future
      operating commitments at December 31, 2016 are as
  follows:

| |                                                  |   |        |  |   |              |  |   |       |  |   | Greater | 
| | ------------------------------------------------ | - | ------ |  | - | ------------ |  | - | ----- |  | - | ------- | 
| |                                                  |   |        |  |   | Within       |  |   | 2 - 5 |  |   | than 5  | 
| |                                                  |   | Total  |  |   | 1
      year |  |   | years |  |   | years   | 
| | Maturity analysis of financial
      liabilities |   |        |  |   |              |  |   |       |  |   |         | 
| | Trade payables and accrued liabilities           | $ | 17,187 |  | $ | 17,187       |  | $ | -     |  | $ | -       | 
| | Equipment financing                              |   | 378    |  |   | 378          |  |   | -     |  |   | -       | 
| | Interest payments
      on equipment financing   |   | 6      |  |   | 6            |  |   | -     |  |   | -       | 
| |                                                  |   | 17,571 |  |   | 17,571       |  |   | -     |  |   | -       | 
| | Commitments                                      |   |        |  |   |              |  |   |       |  |   |         | 
| | Future operating commitments (1)(2)              |   | 30,585 |  |   | 30,432       |  |   | 153   |  |   | -       | 
| | Provision for site reclamation and closure (3)   |   | 5,160  |  |   | -            |  |   | -     |  |   | 5,160   | 
| | Other provisions (4)                             |   | 1,240  |  |   | 1,240        |  |   | -     |  |   | -       | 
| |                                                  |   | 36,985 |  |   | 31,672       |  |   | 153   |  |   | 5,160   | 
| | Total financial liabilities and commitments      | $ | 54,556 |  | $ | 49,243       |  | $ | 153   |  | $ | 5,160   | 

| | (1) | The future operating commitments of the Company are
      mainly due to the mining contract with Peal de Mexico, S.A. de C.V.
      (Peal). The original Peal contract was for 42 months, however an
      addendum was signed effective November 1, 2012 for five years (December
      31, 2016 - 10 months remaining) and covers substantially all mining
      services at a fixed cost per tonne of material mined. The Peal commitment
      is based on the expected tonnage for 2017. Operating commitments also
      includes a guarantee provided by the Company for the office premises at
      its corporate office.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Contractual commitments are defined as agreements that
      are enforceable and legally binding. Certain of the contractual
      commitments may contain cancellation clauses; the Company discloses the
      contractual operating commitments based on management's intent to fulfil
      the contracts.                                                                                                                                                                                                                                                                                                                      
| | (3) | Provision for site reclamation and closure represents the
      undiscounted amount of the estimated cash flows required to settle the
      retirement obligations of the San Francisco Mine.                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (4) | Other provisions represent the undiscounted amount of the
      demobilization costs related to the Peal contract, whereby the Company is
      responsible for demobilization costs payable one month prior to the end of
      the mining contract. This obligation has been recorded at an annualized
      discount rate of 2.25%, reflecting the implied interest rate, and
      calculated according to the formula stipulated in the contract. At
      December 31, 2016, this obligation was determined to be
  $1,219.                                                                                                   

Various tax and legal matters are
outstanding from time to time. In the event that managements estimate of the
future resolution of these matters changes, the Company will recognize the
effects of these changes in the consolidated financial statements in the period
such changes occur.

42

---

|TIMMINS GOLD CORP.                                               
|-----------------------------------------------------------------
|NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                   
|December 31, 2016                                                
|(In thousands of
      United States dollars, except where noted)

|25. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company has determined that it has one reportable
      operating segment, being the acquisition, exploration, and development of
      mineral properties located in Mexico. At December 31, 2016, all of the
      Companys operating and capital assets are located in Mexico except for
      $14,033 (December 31, 2015 - $3,928) of cash and cash equivalents and
      other current assets which are held in Canada.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | During the years ended December 31, 2016 and 2015, the
      Company had sales agreements with three major customers. The percentage
      breakdown of metal revenues by major customer is as
  follows:                                                                                                                                                                                                                        

| |            |  | Years ended December 31, | 
| | ---------- |  | ------------------------ | 
| |            |  | 2016                     | 
| | Customer A |  | 95%                      | 
| | Customer B |  | 4%                       | 
| | Customer C |  | 1%                       | 
| | Total      |  | 100%                     | 

Due to the nature of the gold market,
the Company is not dependent on any customers to sell the finished goods.

The Companys metal revenues from
operations, 100% of which are derived in Mexico, for the years ended December
31, 2016 and 2015 are as follows:

| |                   |   | Years ended December 31, | 
| | ----------------- | - | ------------------------ | 
| |                   |   | 2016                     | 
| | Gold              | $ | 122,916                  | 
| | Silver by-product |   | 957                      | 
| |                   | $ | 123,873                  | 

43

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